Earnings Call: Q1 2022

Aug 4, 2021

Thank you for joining us today to discuss e. L. F. Beauty's Q1 fiscal 2022 results. I'm Casey Catton, 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 will find factors that could cause actual results to differ materially from these forward looking statements. President. 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, Casey, and good afternoon, everyone. Today, we will discuss the drivers of our Q1 results as well as our raised outlook for fiscal 2022. President. I want to start by recognizing our e. L. F. Beauty team. We delivered Q1 results well ahead of our expectations. With Q1 net sales of $97,000,000 up 50% versus year ago. Q1 marked our 10th consecutive quarter of President of the Americas and our largest net sales quarter ever. We delivered adjusted EBITDA of $22,000,000 up 40% versus a year ago. Color cosmetics category trends are inflecting positively fueled by pent up demand, stimulus money and easing COVID restrictions. The category grew in June above 2019 pre pandemic levels for the first time this year. We're outperforming our competitors in this drop, underscoring the strength of the e. L. F. Business model. Our products are resonating in our digitally led strategy, core value proposition and President and CEO of E. L. F. And CEO of E. L. F. And CEO of E. L. F. Was the only top 5 color cosmetics brand to post retail sales growth above 2019 levels. E. L. F. Continued to gain market share with 5.5% of the category, up 20 basis points year over year. E. L. F. Was the only top 5 color cosmetics brand to grow share above pre pandemic levels by a wide margin. We are progressing to a multi brand portfolio. In Q1, Recharge Packaging for Well People hit shelves and we expanded our product offerings for key Soul Care. President. We feel great about the progress we're making across the portfolio and particularly the early wins we're seeing with Well People and Key Soul Care as we build awareness behind these brands. President. With the momentum across our portfolio, we're raising our full year guidance, which Mandy will discuss shortly. Our relentless focus on our 5 strategic imperatives is driving results. Let me provide a few highlights from the quarter. Our first strategic imperative is to drive brand demand. E. L. F. Cosmetics has nearly 12,000,000 followers across our digital ecosystem, Growing double digits year over year. We recently completed our annual Nielsen marketing mix analysis and again saw strong ROI results for our marketing investments, Presidents, giving us further confidence that our marketing and digital initiatives are driving profitable sales. We see this as a time to lean into our strengths And we've decided to strategically invest more behind our brand momentum at an expected rate of 15% to 17% of net sales. We continue to find innovative ways to engage and entertain our community, moving far beyond traditional beauty boundaries. We're pushing further into gaming, which resonates strongly with our young diverse community. In a social survey, over 70% of e. L. F. Fans responded that they play video games And 65% like to watch gamers play on platforms like Twitch and YouTube. We were the 1st major beauty company to launch A branded channel on Twitch named Elf You centered around the concept of game up or the intersection between gaming and makeup. We also partner with TikTok and Enthusiast Gaming to launch the TikTok Gamers Got Talent contest. We far exceeded the challenge benchmarks that we set in terms of engagement rates, video creations and average watch time per person. The TikTok gamers got talent hashtag generated nearly 17,000,000,000 views. We're disrupting the digital space as we continue to test and learn on new frontiers. We created crypto cosmetics and launched a series of non fungible tokens or as we call them n. E. L. F. Teas. 3 of e. L. F. Beloved holy grail products, Our Poreless Putty Primer, 16 hour Camo Concealer and Ride or Die Lip Balm were dipped in digital gold and went 100% crypto. In true e. L. F. Speed, our 9 limited edition N. L. F. T sold out in just 9 minutes. E. L. F. Was the first beauty brand on Wattpad, The world's largest social storytelling platform. Our hashtag EyesLipsFierce write a thon challenge asked users to share original stories of women in their lives Who inspired them to be strong, smart and fierce. Our challenge generated the largest number of entries of any female targeted campaign to date on the platform. We teamed up with Snapchat to test the platform's new augmented reality lenses. These new AR lenses provide consumers with unique makeup try on experiences For nearly 800 of our SKUs. We're already seeing Snapchatters engage with our products in new and meaningful ways. Our brand building efforts continue to win awards. In Kiara's recent Gen Z State of Beauty report, e. L. F. Cosmetics ranked as the number 2 favorite beauty brand in 2021, up from number 9 in 2019, Reflecting our growing appeal with Gen Z. We won 2 Cannes Alliance, the global benchmark for creative excellence In recognition of our hashtag EyesLooks Face campaign and our e. L. F. Chipotle collaboration. Business Insider Corey Marchisotto and e. L. F. Board member Kenny Mitchell as 2 of the most innovative CMOs in the world, putting e. L. F. In admirable company with leaders from Chipotle, TikTok, Sephora and Lego. Congratulations, Corey, Kenny and our entire marketing team. Key Soul Care, our groundbreaking lifestyle beauty brand with Alicia Keys is already being recognized as both timely and timeless. President. We garnered 6,000,000,000 global press impressions in the last quarter alone. Alicia is proud, passionate and committed. She was featured on the cover of 5 highly coveted publications around the globe promoting key Soul Care and our product offerings with in-depth multipage features. In addition, Alicia supports key soul care across our social channels. Her post about our new body care offerings generated over 11,000,000 views. Turning to Well People, our pioneering clean beauty brand known for its dermatologist developed plant powered and high performance products. The brand turned 13 in June and we are thrilled to celebrate with a new look, new and improved formulas and new products. This quarter, we rolled out new packaging, which is resulting in improved click through rates on our paid media. The brand is shining across top tier media outlets, ranking number 1 in share of voice of press impressions against its competitive set. We feel great about Well People and we are encouraged by the stronger sales trends we're seeing. Our second strategic imperative is a major step up in digital. President. Our digitally led strategy continues to serve us well with our digital consumption trends up triple digits on a 2 year stack basis relative to 2019 Or pre pandemic levels. We did see a channel shift between digital and brick and mortar in Q1, in line with our expectations As consumers gain comfort returning to stores and as we lap periods last year where certain retailer doors were closed. Digital channels drove 13% of our total business in Q1 as compared to 19% a year ago and 8% 2 years ago. On elfcosmetics.com, over 50% of our shoppers in Q1 were new consumers. Our new consumers continue to over index on skincare And sign ups for our Beauty Squad loyalty program. Beauty Squad now has nearly 2,600,000 members, up over 30% year over year. President. Our loyalty members are a highly valuable part of our digital ecosystem. They have higher order values, purchase more frequently, Have stronger retention rates and drive almost 70% of our sales on elfcosmetics.com. We're excited to announce that we launched Our global key Soul Care loyalty program in May called Soul Care Rewards. Our rewards page is already one of the top click pages on our mobile site And reward members are making up an increasing percent of our sales on keysoulcare.com. Our third strategic imperative is to lead innovation. Our superpowers that center on our ability to deliver 100% cruelty free, premium quality beauty products at accessible price points with broad appeal Continue to resonate with consumers. E. L. F. Cosmetics saw ongoing success this quarter in our core segments. President of the Company's Board of Directors, Primers, Concealers, Brows and Sponges, which make up approximately half our sales. We have the number 1 or 2 position in all five segments and continue to drive market share gains in each. Importantly, we're innovating to build upon our core franchises and deliver newness for consumers. In Q1, we launched our acne fighting putty primer and our putty bronzer, Building on the success of our putty primer franchise. The consumer response has been phenomenal. Our acne fighting putty primer is our best selling SKU on elfcosmetics.com since launch. And our putty bronzer is getting rave reviews on TikTok in its 1st few weeks. We also launched limited edition Electric Mood collection, which we developed with our annual Beauty Squate competition winners. Inspired by 3 musical artists including Grammy nominated global superstar, Tove Lo, our electric mood collection is exclusively available at elfcosmetics.com Gene Innovation pipeline we have planned for e. L. F. Skin. In Q1, we launched our Holy Hydration face cream with SPF 30, Adding SPF protection to our best selling face cream. This product is clearly resonating with consumers and is our best selling skincare SKU since its launch. Key Soul Care further fuels our momentum and overall product range in this category. Consumers are highlighting the quality of the brand's initial skincare collection with admirable product ratings of 4.9 out of 5 on keysoulcare.com. We also recently launched new key Soul Care Starter Sets to encourage trial for new consumers. Looking beyond skincare, we remain excited about the multiyear, multi category innovation pipeline we have planned for this brand. In Q1, we expanded our product offerings into a new category, body care, with 3 new offerings that align with the brand's commitment to restorative rituals. The new body care offering celebrate the strength and beauty of the body while reinforcing body positivity. The campaign includes individuals of varied Shapes, sizes, interests and points of view and ask light workers to share their views on how they let go of labels and make time for self celebrations. I praise my body and I really respect it. My body is a rainbow of shades of melanin. This body is the only person like this. I love my double chin. When I'm smiling, it's there. I love the way I feel when I'm happy. Thank you so much for showing me how even in my stretches and growth, President. Our 4th strategic imperative is driving productivity and space expansion with our retail partners. With e. L. F. Cosmetics, we continue to see shelf space opportunity with our key retailers. To that end, we're pleased to announce that we've earned space expansion with CVS for fall 2021 and Walmart for spring 2022 In a subset of each of their doors. Internationally, which represents major white space, we're also pleased to announce that we're expanding our shelf space with boots in with 3 major retail partners in the U. S. With Ulta Beauty, in the UK with Cult Beauty And in 8 countries across Western Europe with DuGlass. We recently launched with our 4th major retail partner, Harrods in the UK. Key Soul Care launched online at harrods.com in June and in H Beauty Retail Stores in July. Key Soul Care continues to open new doors for our brand portfolio internationally and we remain excited about the global potential we see for this brand. We're also pleased to announce space expansion we've secured for Well People by leveraging our strong relationships with our retail partners. Ulta Beauty will be featuring the brand via in line space in a subset of their doors starting in spring 2022. This marks the brand's first in line placement at Ulta Beauty Stores after being featured on a limited edition end cap as part of Ulta's conscious beauty program. Well People continues to raise the standard for high performance Plant Powered Clean Beauty. Our 5th strategic imperative is delivering cost savings to help fuel brand investments. As we spoke about last quarter and like many companies, we're seeing a global imbalance of containers, which is slowing some of our shipments and increasing our transportation costs. I'm incredibly proud of the e. L. F. Beauty team for how we've navigated these logistics. Even with the container capacity issues we're seeing, We've been able to maintain approximately 95% in stock levels with our key retail partners. As we look forward And to ensure we're prioritizing our core business and meeting the ongoing strength in consumer demand, we've decided to forego our 2021 holiday program, A limited edition collection of gift sets. The impact is embedded in our raised guidance and further reflects our core business strength. President. We remain confident in our ability to navigate these global supply chain challenges and believe that our supply chain is a competitive advantage President. Let me provide a bit more perspective on the overall strategic framework of our company and brands. We lead with purpose. President. By standing with every eye, lip, face and paw, we are committed to operating in a sustainable manner and being a responsible corporate citizen for the benefit of our consumers, Our investors, our team, the environment and the communities in which we live and work. In fact, Fortune recently named e. L. F. Beauty as one of the best workplaces in 2021. In Q1, we launched a new social impact section of our e. L. F. Beauty website to enhance our ESG policies and disclosures with enthusiastic support from business leaders throughout the company as well as our Board of Directors. We look forward to continue to share our progress on our ESG journey. Our company was founded 17 years ago with a mission to make The best of beauty accessible to every eye, lip and face. Underpinned by the foundational work behind our 5 strategic imperatives, The strength of the e. L. F. Cosmetics brand has allowed us to expand our portfolio with strategic extensions that support our purpose and values. President. Today, we have a portfolio of complementary but distinct brands with each position to touch diverse consumer cohorts at different price points. President. Looking ahead, we believe we're still in the early stages of realizing the full potential of our business and see significant opportunity in fiscal 'twenty two and beyond. I believe we're well positioned to drive growth in both the top and bottom line as reflected in our raised guidance. I'll now turn the call over to Mandy. President. Thank you, Tarang. I am pleased to share the highlights of our outstanding Q1 results and our raised fiscal 2022 outlook. President. We delivered Q1 net sales growth of 50% versus prior year, driven by ongoing momentum across our brand portfolio, President. Better fulfillment rates than we expected and benefits from stimulus related spending. We also saw an improvement in our performance at Ulta President, and internationally, particularly as we lapped periods of store closures from a year ago. Gross margin of 64% President. Gross margin benefits were more than offset by changing FX rates and elevated transportation costs President, Vice President, Vice President, President. As consumer shifted from e commerce to brick and mortar. On an adjusted basis, SG and A as a percentage President of the Company's Q1 fiscal 20 22 results. I'm Casey Catton, Vice President of the Company's Q1 fiscal 20 22 results. Our increased investment behind marketing and digital Cattan, Vice President of Investor Relations, Inc. Was more than offset by leverage in our non marketing related spend from the combination of better than expected top line trends President and taking a sharper look at our expenses. Marketing and digital investment for the quarter was approximately 16% of net sales President and CEO. And adjusted EBITDA margin was approximately 22 percent of net sales. Adjusted net income was $14,000,000 or $0.27 Cattan, Vice President of Finance, Inc. Or $0.17 per diluted share a year ago. Our liquidity remains strong President. With the combination of our cash balance and access to our revolving credit facility sitting at over $130,000,000 President. We ended the quarter with $63,000,000 in cash on hand compared to a cash balance of $54,000,000 a year ago. President. Our ending inventory balance was relatively in line with last year and will build as we approach September. President. We expect to increase our inventory levels to approximately $75,000,000 to $80,000,000 driven by longer lead times, President. Higher transportation costs, the addition of Key SoulCare and Well People and continued business momentum. President. We expect our cash priorities for the coming year to remain focused on investing behind our 5 strategic imperatives President and supporting our strategic extensions. Now let's turn to our outlook for fiscal 2022. President. As Tarang discussed, our investments are working and our momentum and category outperformance is strong President of Finance, Inc. As demonstrated by the 50% net sales growth we delivered in Q1. Our recently completed annual Nielsen marketing mix analysis Again showed strong ROI, giving us further confidence that our marketing and digital initiatives are driving profitable sales President and CEO of the Board of Directors. As a result, we made a proactive decision to invest behind our strength President and take our marketing spend up to approximately 15% to 17% of net sales for fiscal 2022. President. As compared to our expectation for 14% to 16% previously, this increased investment, President. Coupled with modest pipeline from space gains as well as our expectations for continued business momentum is supporting our significantly increased Top Line Outlook. We now expect net sales growth of approximately 12% to 14% President, up from 8% to 10% previously. We expect adjusted EBITDA President. Between $66,500,000 to $68,000,000 up from $66,000,000 to $67,500,000 previously adjusted net income President. Between $36,000,000 to $37,500,000 up from $35,000,000 to $36,800,000 previously President and CEO of $0.65 to $0.68 per diluted share, up from $0.64 to $0.67 previously. President. We still expect a fully diluted share count of approximately 55,000,000 shares and our fiscal 2022 tax rate for fiscal 2022. 1st, on our decision to forego our 2021 holiday program. President. As Sarang mentioned, we made this decision to ensure we're prioritizing container space for our core business. President. This is expected to result in an approximately $6,000,000 reduction to net sales, largely in Q3. President. The elimination of our holiday program will impact our Nielsen results during the Thanksgiving through New Year's timeframe. President. The good news is that we still plan to have some holiday themed deluxe kits, although in smaller quantities than our traditional holiday program. President and CEO of the President in our ability to navigate these global supply chain challenges and meet our ongoing strength in consumer demand as reflected in our raised guidance. 2nd, on adjusted EBITDA. Our guidance now implies President of Investor Relations. 9% to 11% year over year growth in adjusted EBITDA. Relative to our previous guidance, we do Catton, Vice President of Investor Relations, Inc. And Vice President of Investor Relations, Inc. And Vice President of Investor Relations, Inc. And Vice President of President. Outside of these factors, our underlying assumptions are largely unchanged. We continue to expect gross margin to be down year over year President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, Vice President, President. We are pulling levers to help mitigate a portion of these gross margin impacts, including through select price increases and cost savings initiatives. President. Within SG and A, we continue to expect leverage on our non marketing SG and A spend, both as President. As a reminder, President. Fiscal 2022 will be the 1st year within our 3 year long term economic model, President of Investor Relations. We're pleased to be targeting top line growth well above that range this year. President. Against the backdrop of global cost pressures and our desire to invest more in marketing, we still anticipate healthy adjusted President of Investor Relations and remain focused on expanding our adjusted EBITDA margins over the next 3 years. President. In summary, we're pleased with our outstanding Q1 results and are excited about the opportunities ahead in fiscal 2022. President. Our performance over the last 10 quarters, both on an absolute basis and relative to the category, President, Vice President, Vice President, Chief Executive Officer, and Chief Executive Officer, President. President. And the first question comes from Erinn Murphy with Piper Sandler. Please go ahead. Great. Thanks. Good afternoon and congratulations on a very solid quarter. President. I guess my first question Tarang is for you. On the color cosmetics category broadly, it seems like it's had a little bit of traction of late. Can you just Share how you're thinking about the sustainability of the category as we move forward? And have you seen anything, as it relates to the Delta variant and some of the Concerns domestically, certain markets starting to wear masks again, has that impacted any of the recovery in this category? President. Hi, Aaron. Well, we remain quite bullish on the color cosmetics category. As we talked, June was the 1st month in track data that We saw the category above 2019 levels. So we've seen a pretty good inflection. And I think that's reflective of consumers pent up demand for this category, Stimulus easing of restrictions. And so I'd say overall, we're quite bullish on the category going forward. In terms of the Delta variant and any additional It's hard for us to tease that out. I think in the backdrop of higher consumer demand as well as stepped up innovation, not only from us, But also from some of our competitors, we're liking the trends that we're seeing across each of the core categories within color cosmetics. President. Okay. The next question is from Andrea Teixeira with JPMorgan. Please go ahead. President. Yes, thank you. Good afternoon. And I'm going to echo the congratulations for the quarter and also to Corey for President. I'm not surprised, but I'm still impressed with her awards. I just want to go back to the guide and I think, President. Manji, you mentioned obviously accelerating, but that means that after this 50% growth that you had in the Q1, Cattan. Can you walk us through what is informing you into the deceleration? Of course, I understand that you're still facing a lot of supply Thank you, Shus. And I think we all understood very well through the CPG earnings season that this is real. And but is there anything else that you want to President. I highlight that you're seeing in terms of I think your answer to Erin's question is no, you're not seeing any deceleration. And I think the momentum that you've Building and increasing, I was just checking, I think you've squeezed 500 basis points as a percentage of sales in your marketing investment President. Year over year and you're building in 2 100 basis points higher than you had before. So what is informing you? And then on the same Cattin. Why not taking more pricing to defend profitability of added flow a little bit more into the bottom line? President. Okay. All right, Andrea. Nice to hear from you. And there's quite a few questions in there. So let me just start President of Investor Relations with where we are in Q1. So Q1 was a fantastic quarter for us, up 50% net sales growth. President. And a lot of the drivers that we saw in Q1, one core momentum behind the e. L. F. Brand. President. We continue to see strong trends on the brand, so that was fantastic. We also had better fulfillment rates this quarter than we originally President, which helped us to get to that 50% net sales growth. We also had the impact of stimulus. So if you recall, we talked about in Q4 and we saw At trickle over into Q1, this 3rd round of stimulus was by far the largest that we've seen from an impact standpoint. President. And then we also had improved trends at Ulta and internationally, especially as we lapped those periods of store closures last year. So that's really President of Q1 overall. In terms of top line and the outlook, we really expect those trends to continue on the e. L. F. Business. Top line momentum, President. We continue to see we are increasing our marketing investment to your point, and we have seen strong ROI associated with that. So that's also Cattan, Vice President of Investor Relations. And as well as pipeline associated with the space gains that we called out. So all of those things are impacting the top line. Cattan. From an EBITDA standpoint, we are seeing the margins of little bit of compression there and it's because we are investing Cattan, Vice President of Investor Relations. So we took our marketing and digital range up to 15% to 17% from 14% to 16% previously. President. And as you mentioned, the cost pressures that we see with ocean cost and in the supply chain that also is embedded within our guidance as well, As well as costs associated with some of those space gains that we mentioned. And then on your question on pricing, Andrea, this is a brand that does have pricing power. So we successfully executed our largest price increase ever in 2019. We followed that up with another round of more modest price Vice President of Investor Relations. This is more recently in the U. S. And about a pretty big price increase internationally that was implemented really in the May timeframe. And so we feel good about our ability to price. The reason why we don't want to price right now any further is we see some of the cost headwinds that we're seeing It's temporal in nature. The imbalance of containers, we feel will balance out over time. We saw a good increase in the availability of containers as the quarter And over time, we would expect those costs to also moderate. So we don't necessarily want to get ahead of us on pricing, but if we saw that some of these President. The next question comes from Steph Wissink with Jefferies. President. Hi, this is Grace Meng on for Steph. Thanks for taking my question. President. I wanted to kind of double click on the Key Soul Care kind of strength that you're seeing. Could you talk a little bit about the contribution in the period Cattan. And then how we should think about it as we look out over the fiscal year? Sure. So, hi. We're not breaking out key SoulCares. We're not breaking out any Cattan, Vice President of Investor Relations. We talked about every time she posts, every time she does something, we see really great consumer response. In addition, we're really pleased with the execution we've had amongst our across 8 countries in Europe. That rollout was delayed somewhat by some of the COVID restrictions in Europe, but we're feeling good now that it's starting to roll out. And then our latest execution inherits with H. H. Beauty. The brand is really showing up really well and really proud of the execution. So I would say the last thing on Keycell Care, the way to think about it is we're building a brand for the long term here. So this quarter was our first expansion in an adjacent category With the launch of our body care line, the first three items in our body care line that very much tie into the brand ethos on self Love, rituals, body positivity, very much builds on what we started with Key Soul Care and we have a great pipeline Cattan, really for the next few years across multiple other categories. So quite encouraged by what we're seeing right now and look forward to updating you more on that as we continue to make progress. President. Thank you. That's helpful. And then just one follow-up on inventory levels. Are you seeing that President. You've kind of been using inventory that was maybe earmarked for later in the year. And is there a way to kind of you've mentioned some of the Measures that you're taking, can you like use domestic suppliers or explore other alternative approaches as well? Just a little bit more detail there would be great. President. Sure. So overall, we feel great about kind of the outlook on inventory and our supply chain overall. President. I would say that Q1 inventory ended a little bit lower than we would have expected given that we had a 50% net sales growth quarter. And so we talked about the build into the September ending quarter seeing inventory at the $75,000,000 to 80,000,000 Cattan. And really, we feel that is what we where we want to be to support our business, reflective of the longer lead times we are seeing President. Some of the higher transportation costs we're seeing, and then like I said, the continued business momentum and the addition of our brands of Keyes and Well embedded into that number. So Cattane. To your question, yes, we are seeing some longer lead times and starting to rebuild our inventory position as we get into the September quarter. President. And then for the second part of your question on the supply chain, we feel great about our supply chain in terms of the combination of cost, quality and speed that we're able to deliver. We see this primarily as a transportation issue. We have plenty of capacity from a manufacturing standpoint and our ability to really flex to meet the business need. So as Transportation situation gets better, I think we'll be in great shape as we go forward. President. The next question comes from Dara Mohsenian with Morgan Stanley. President. Hey, guys. Two questions. Just first on the transportation issues, President. I guess it really didn't seem to impact fiscal Q1 all that much given you were up 50% year over year. And President. As you mentioned, the fill rates were healthy in the 95% range. So I just wanted to understand is, are things getting worse potentially post President. The June quarter, do you think things are better? In general, the tone sounded more constructive. President. But just given the growth we saw year over year in Q1, it didn't seem to be a big issue for you guys. So just wanted to get a little bit of update in terms of what we should expect going forward on Provost. Yes. Hi, Dara. What I'd say is I'm really proud of the way the team navigated the container imbalance. So the stat we use is We're able to maintain 95% customer in stock levels. Our fulfillment rates were lower than that, but our team was able to make sure through our penetration and our customer Supply chains that they had the right inventory by item level to be able to maintain strong in stocks. We have seen more container availability, Cattan, Vice President of the Company. So we hope to get those fulfillment rates up even further. And there'll be a temporary hit to our customer in stocks as we work through that. But overall, Cattan, Vice President of Investor Relations. Pretty confident in terms of our ability to meet the consumer demand, as we navigate through this situation. President. Okay. And then just to follow-up on Andrea's question, the balance of your revenue guidance is President. It's only about 3% to 4% of your midpoint. I guess if you add back the holiday program, it'd be more like mid single digits. But President. Obviously, it's a pretty big slowdown from what we saw in fiscal Q1 as well as fiscal Q4 and even last year's full fiscal year during COVID. So President. You generally sound pretty positive about most of the underlying dynamics in the business. And obviously, transportation is a limiting factor, but it doesn't sound It's prohibitive at this point. So I'm just trying to better understand that revenue guidance in the balance of the year and if there's anything Significant besides the holiday program that would really limit Revenue growth a lot more than what you've already seen recently. No. So the holiday program is The key factor in that, we called out $6,000,000 related to that, that we are pulling out of our forecast. President. As well as we do, as I mentioned earlier, stimulus in the base as well as we get into the back half of the year Q4 President of Investor Relations, that we're cycling through. So outside of that, we feel confident of our core business momentum and expect to see that growth President. The next question comes from Linda Bolton Weiser with D. A. Davidson. Please go ahead. Yes, thank you. President. So you talked about the impact on sales of not doing the holiday program. What would be the effect on mix and gross margin? Are the gifts that Actually a little bit lower gross margin? So we haven't given specifics on the holiday program and the gross margin impact. Cattan. But I would say just from a mix standpoint, the Luxe Kits versus is that what you're asking Luxe Kits versus our traditional holiday program? President. I would say there's not a major difference in that. Yes. Just adding a little bit more color to that Linda, The decision of foregoing holiday, we like our annual holiday program. It's a great way of engaging consumers, but holiday kits have a very high Cube. So it takes about 4 containers to get the same amount of product as we can get on 1 container. And so given the strength in our consumer demand, really prioritizing our core SKUs, The Luxe Kits help us make up for part of that gap. But in addition, we will have pretty strong consumer engagement efforts as we've had and Stepped up really throughout each of the quarters. So we feel we can navigate through it. It will be a temporary piece and definitely feel good about the decision to Prioritizer Base Business. Thank you. And then, so it's great to hear you talk about getting some additional Shelf space in the international markets. So how does that as you grow internationally, how does that affect kind of your margin President. Over time, as you get bigger internationally, and how does it affect your need for working capital? President. So on the margin side of things, I think we've talked about this before. We really look at our business from a margin agnostic standpoint. So whether that volume is coming from the U. S. Or internationally, it's relatively in line with one another. From a Cost of capital and cash flow perspective, there's also not much outside of inventories that we have that's required President. Behind that, and it's very similar to our U. S. Business in terms of shelf space expansion and fixturing and things like that, Cattan. That's just normal course of what we see even here in our domestic business. And part of the reason why Linda is our approach a couple of years ago Where we shifted from distributors to direct selling to key headquarter sales is a very efficient model that our and quite similar to the way we service Ulta Beauty, Target, Walmart and others. President. Okay. Thanks. And just finally, again, great news about your expanded shelf space in the U. S. President. What are some of the challenges as you continue to add more and more space at some of the retailers like Ulta and Walmart, Cattan. In terms of how do you maintain the high productivity of the shelf space as it grows over time? President. Yes, that's inherent in our model. Our model is based on the data that we get off of our e commerce site. Most of our innovation goes online first. President. We get really great data, not only in sales, but also customer reviews, level of engagement behind those. So we have a good model really Cattan. Stepping back all the way back to 17 years ago, starting as a digital business, we were able to take those insights, work with our Customers and really proactively decide which items we're going to delete and replace them with. And that productivity model has serviced well over the years. And I would say, we have tremendous space opportunity really at every single retailer we deal with. So while I'm pleased with the space gains President. We have a lot further to go. And I think the one benefit of stepping into space sequentially We're able to optimize that space better. There are years in the past where we picked up massive amounts of space at a particular customer in a given year and we found it took us a couple of cycles To really grow into that space, I think the types of increments we're getting now in space, it's quite manageable given the extent of our innovation and Catton, Vice President of Product, probably the best example being, if you go into some Target stores, President. You will have 16 to 20 foot sets in some of their doors and we do extremely well with those. So highly confident of our ability to continue to optimize the space President. The next question comes from Olivia Tong with Raymond James. Please go ahead. President. Great. Thanks. First, congrats on the quarter. I wanted to talk a little bit about sort of the Key drivers of that dramatic top line acceleration, was it particular retailers? Because it sounded like all brands were better than you expected. Was it Brick and mortar versus online, particular subcategories, just a little bit more detail there would be great. And then just thinking about the guide, President. I guess I understand the supply chain challenges. I understand forgoing from the holiday plans, but you're also seeing Looks like some very nice retail space expansion wins that should help you later in the year. President. Just trying to understand sort of the puts and takes there for the rest of the year and why you sort of net out where you do? Thank you. President. Sure. Hi, Olivia, and thanks for joining us. So I would say our Q1 net sales growth drivers, President. Again, are really driven by the core momentum that we're seeing behind the e. L. F. Cosmetics brand. We had better fulfillment rates than we initially expected. President. We also had the impact, trickle over impact of stimulus into Q1. And then we also saw better President and internationally, especially as we cycle those store closures in the base. Also from a shift from brick and mortar over into e commerce over to brick and mortar, as we have seen the U. S. Reopen, we have seen that shift as we expected, Consumer is going back into the stores, but we're still very pleased with our e commerce performance, up triple digits on a 2 year basis. President. To answer your question on balance of your guidance, the space expansion, so we did mention that we do have some pipeline associated with the space expansion in there. President. But since these are spring 2022, you will really see the impact of that as we get into our next fiscal year. President. You'll just really have the pipeline this year. Right, right. I'm surprised the pipeline isn't President. That's dramatic too. So maybe you can add a little bit there. But then my other question is around President of the Marketing spend and the decision to increase that by 100 basis points more than you had originally anticipated. So first, President. Trying to understand why you decided to do that. I mean, especially after a 50% growth quarter, is there a specific area you really want to push or Cattan. Obviously, more marketing is great, but just kind of understanding the genesis of the decision to increase that. President. And then as I sort of just do quick back of the envelope math, it looks like President. Your EPS guide or your EBITDA margin guide would suggest about like 100 basis points of incremental margin pressure for the rest of the year. So President. Obviously, cost pressures are much higher than that. So if you're increasing your marketing by 100 basis points, cost pressures are significantly higher versus your going in expectations. What's the offset President there, that I'm not quite sure. Thanks. Hi, Olivia. So I'll take the first part and I'll have Mandy answer the second. So on marketing, We're just seeing real momentum in the business and that's been driven by our marketing investments and we feel great about Bim. In fact, we recently got our annual Nielsen marketing mix results showed extremely strong ROI behind our marketing. So we're leaning into our Strengths. We see plenty of opportunities for us to continue to drive consumer engagement and fuel the momentum we have. And so That was a real core driver between that. We just see more opportunities than frankly we can invest in. And so we want to make sure that we keep those levels strong. President. And in the Q1, our marketing and digital investments were about 16% of net sales. Our guidance for the year is 15% to 17%. So we're comfortable Within that range in terms of our ability to continue to drive very strong consumer engagement. Yes. And then on the delta, Olivia, The non marketing SG and A is really helping to offset the gross margin headwinds that we're seeing as well as A portion of the additional marketing investment that we're putting in. And really that's driven by top line momentum, driven out of Q1 And then also us taking a sharper look at expenses outside of marketing as we go through. So that's also helping on the year. President. The next question comes from Oliver Chen with Cowen. Please go ahead. President. Hi, thank you. On the skin core category, what are you focused on in terms of innovation and what you're seeing in the marketplace as we look President. Where do you see the most opportunity in terms of KPIs from consumers as you engage in President. Hi, Oliver. So on skincare, I would say we have Cattan, Vice President of the United States. Very broad focus on skincare and it really is across our brand portfolio. So on e. L. F. Skin, we just recently launched our holy hydration cream with SPF thirty. It's quickly become our top selling skincare SKU. So continue to hit the key segments within skincare under the same thesis of e. L. F, the best Beauty made accessible, so you'll continue to see really high quality products with these extraordinary values on e. L. F. And we have a long way to go in that pipeline. Key Soul Care started with a skincare focus. So the clean skincare products we have on Key Soul Care, we feel great about. The average product ratings of our initial nine products are 4.9 at a 5 stars on keysellcare.com and we have a rich pipeline behind that. We also see opportunity on Well People longer term in terms of skincare. President. So we see opportunity across all three of our brands and since each brand is distinct and complementary in nature, you'll see each one take a little bit of And then on your second question on terms of marketing, where the incremental dollars will go, I would say it's a combination of highly proven ROI vehicles like many of our campaign vehicles in terms of our media and awareness driving where we've seen great results, as well as continuing to lead The way and test and learn on new platforms. We're incredibly pleased obviously with the work that we've done on TikTok over the years. Our TikTok gamers got talent Challenge, I think raised is now over 17,000,000,000 views. Our foray into gaming Has proven to be really great. Our live stream on Twitch, the level of engagement we're getting there, the attribution we're getting there is really actually also Quite strong. And then new platforms, as you heard us talk about on this call, so we think there's an opportunity. So the way I think about the marketing dollars over time is President. A combination of well proven vehicles where we have very strong ROI data on as well as continue to disrupt category and really get consumer engagement, including many of the partnerships we do and the collaborations we do. President. Thank you. And a final question. There's been a lot of ingredients, innovation and R and D in the industry at large. What are your thoughts On how that will apply to your platform and also maintaining R and D innovation at ELF as well. Thank you. Yes. So innovation has long been a key strength of ours. And I would say our biggest focus on innovation beyond having Great new products that consumers love is our continued journey on clean beauty. And so it's a very strong ingredient focused on that. If you think of Well People, Pioneering Clean Beauty brand with plant powered beauty that works, that really is at the gold standard and Acquiring Well People brought a lot of capability into the company in terms of our clean journey. We had reformulated every one of those products since we did our tech transfer on our operating platform, Realizing even better product performance, it's significant COGS savings and in turn getting learnings that really helped us launch Key Soul Care through President of Well People, Doctor. Renee Snyder, working with our innovation team have really some high standard in skin Cattan, Vice President of the United States and has a very strong ingredient focus as does well people. And then even e. L. F, we're making great progress on e. L. F. On Clean. If you take a look at our formulations, there's over 1600 ingredients we do not formulate with and our continued progress in clean. So that's really One of the primary focus areas beyond having really great products is increasingly consumers care about what President. The next question comes from Mark Astridman with Stifel. President. Yes, thanks and afternoon everyone. Two questions. Just first, if you could quantify President. Any sort of benefit that you saw from the stimulus this go around in terms of just impact to sales, any sort of direction would be helpful there. And then secondly, just a series of broader questions related to skincare. Relatively small Percentage of the portfolio today, anything you should sort of frame as to how it can progress in terms of the mix on a go forward basis? Could you also talk a bit about where you're sourcing consumers? Are they new to skincare? Are you sourcing share from other brands? President. And then also just any sort of seasonality to the business that you've observed so far? President. And then just 2 other pieces, shelf space in terms of what you have today relative to the number of skincare SKUs. So Presumably that would expand as you add more incremental space as you referenced. And then also could you just remind on the margin impact for Skincare versus the legacy portfolio. Thank you. All right, Mark. Well, I'll take your first question on quantifying the impact of stimulus. President. Like I said, this last round of stimulus is by far the largest impact that we've seen. We've not quantified that specifically on a building block President. And our net sales other than to say it did have an impact to our net sales in Q4 as well as what we saw here in Q1. President. Yes. And on your questions on skincare, I think one of the ways I like framing it is if you look at skincare overall, it's less than 10% of our Total sales, yet online both elfcosmetics.com and Amazon is 25% of our sales and the big delta there primarily relates to the level We continue to pick up more space. Our strategy is to put more of our skincare in because we see a tremendous opportunity to continue to drive that percentage up over time. From a margin standpoint, it's not that different from a margin standpoint from our overall Cosmetic line, the price points are higher. So just on e. L. F. Alone, if you think about our average unit retails on cosmetics, they were about $5 On skincare, they're around $9 And then of course, Key Soul Care is significantly higher than that in the $20 $30 $20 to $40 range. So we do see, I think from a margin standpoint, not that much of a difference, mainly because of our strategy of making sure that we're having the highest quality skincare Accessible is one of the ways that we really win, but definitely generates more gross profit dollars. President. The next question comes from rupesh Parikh with Oppenheimer. Please go ahead. Good Cattan. So I have two questions on gross margins. I was first curious if you can provide any more specificity in terms of how you think about gross margins for the full year. President. And I wanted to get a sense of if maybe Q1 is a low point. And then as we look out, I know it's still early towards next year, would you expect to recover any of the gross margin decline Cattan, Vice President of Investor Relations. Hi, Rupesh. So I will answer your question on gross margin. So President. For Q1, we saw gross margin down about 3.40 basis points year over year. So as we look out on the balance of the year, we President. Gross margins not to be down as much as what we saw in Q1. So improving as we get throughout the year and We kind of find some stability here from some of these transportation costs that we're seeing. In terms of recovery, President. We do see this as a transitory issue. The ocean costs, the container imbalance, we expect all of that to balance out over time. Cattane. And so do expect to get some recovery in gross margin as we go through. Timing of that, obviously, we're not talking about fiscal 23 just yet. So, have to wait and see there. Yes. And just to add to that, Rupesh, I think we're highly confident of our Cattan, Vice President of Investor Relations. Our ability to drive strong gross margins over time. If you just think over the last couple of years, the amount of costs we're carrying between the 25% China tariffs, The transportation costs we talked about, FX turning against us, it's a pretty high level of cost and our ability to continue to deliver even in this year's guidance Cattan, 11% EBITDA growth. We feel really great about that. So I think longer term, we're quite bullish in terms of our ability to manage kind of President. The next question comes again from Erinn Murphy with Piper Sandler. Please go ahead. Great. Thanks for sliding me back in. I had a couple Follow-up still. One was just on your approach, Tarang, and I guess to the team on collaborations, you've done such a great job with the e. L. F. Brand over the last few years. President. How are you viewing product collaborations for both Well People and Keyes Soul Care? Is there an opportunity there? And then just secondly on Keyes Soul Care, With the Ulta Target partnership, I believe Keyes is the one brand you aren't currently selling at Target. When should we expect or do you Vice President. Should we expect that to be on the brand list over time? Thanks so much. Sure. So, Erin, the team has done a remarkable job in terms of These collaborations and doing things in unexpected ways. If I go back to the e. L. F. Chipotle collaboration, even the most recent one we did with our Electric Mood Collection, partnering with 3 global music artists. You're going to continue to see more. I think tomorrow you're going to see our launch of Big Nude, Which builds on the success we've been having in the eye category. We've always had strength in brow. We feel great about Lash It Loud, our mascara before a big mood. I feel it's our best mascara yet that we've launched and you'll hear a collaboration we're doing on that tomorrow. And so you'll continue to see a good stream and there's absolutely Cattan, Vice President of Well People as well as Key Self Care. And in fact, on Key Self Care, the way that brand has been built is through strong collaboration. If We think of our light workers, all of the content that we're putting out, the different voices that you're hearing from Key Soul Care. There's an entire universe of like minded people that we're going to continue to partner with to bring that message out. And then Well People, similarly, we feel there's lots of potential. We think Well People President. It's a real gem in terms of not only its heritage as a real pioneer in clean beauty, but this broader view of Clean Beauty and Wellness. We think there are good partnerships there as well. So you stay tuned. You'll continue to see a lot more And then on Key Soul Care, I would say that Ulta at Target presents us an opportunity Cattan, Vice President of the U. S. We're still in the exclusivity period with Ulta. And so I think the focus for them was really making the most of key cell care in Ulta, but President. In the future, I'm quite hopeful that that becomes another area of opportunity, but you'll continue to see us Expand the presence of KeyStone Care, not only globally, but also eventually in the U. S. President. This concludes our question and answer session. I will now President. Great. Well, thank you everyone for joining us. I'm incredibly proud of the e. L. F. Beauty team, Cattan, not only in how we've navigated this pandemic delivering our 10th consecutive quarter of net sales growth, but the tremendous momentum we have across our entire brand portfolio. President. So we look forward to talking to you next quarter and updating you on our progress. But meanwhile, thank you for joining us. President. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.