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e.l.f. on GenZ customer base: ‘We know how to engage with them’

Yahoo Finance’s Brian Sozzi and Emily McCormick speak with e.l.f. Cosmetics CEO Tarang Amin about the company’s latest earnings report, outlook, and more.

Video Transcript

EMILY MCCORMICK: e.l.f. Beauty reported fiscal second quarter net sales that grew 27% to reach $92 million, marking an 11th straight quarter of net sales growth. Both international and domestic retailers helped drive that increase, and the stock is up this morning. We're welcoming into the stream e.l.f. Beauty chairman and CEO, Tarang Amin, for more. And thank you so much for joining us this morning. First want to ask on these latest quarterly results, talk to us a little bit about your biggest drivers of growth.

TARANG AMIN: So our biggest drivers of growth are our continuation of the execution of our five strategic imperatives. As you said, this is our 11th consecutive quarter of net sales growth, and it really has been driven by our ability to engage young, diverse makeup enthusiasts with meaningful innovation, particularly our Holy Grail innovation that we can bring the best of prestige at affordable prices to consumers. And continued great execution with our national retail partners as well as our digital business.

BRIAN SOZZI: Tarang, true story, I'm out in the stores looking for makeup-- you have to wear makeup as part of this gig-- and there were a lot of out of stocks. Where is your merchandise right now? Is it stuck at the ports?

TARANG AMIN: Well, just like every other company, we've had to deal with container imbalances, longer lead times, elevated costs. But I'm really proud of our team and the management they've done. We made decisions early on to take up our inventory levels to forego our holiday program in order to prioritize our core items. And I'm proud to say that our team was able to maintain 95% in-stocks through the second quarter, and that really came from a lot of management and dealing with the issues.

EMILY MCCORMICK: Given some of these issues, have you had to implement price increases or are you expecting to in the near term?

TARANG AMIN: Well, we did do one round of price increases in May, particularly on our international business. And that actually benefited gross margins by 100 basis points. I think in terms of further pricing, we want to take a look to see how many of these costs are permanent versus more temporal in nature. But this is a brand that does have pricing power. Our last two rounds of pricing were quite successful, and we want to continue to do that, maintain our extraordinary value at the same time. So we'll evaluate it over the next couple of months to see if we need to take more pricing.

BRIAN SOZZI: Why is skin care so hot, Tarang?

TARANG AMIN: Well, skincare, I mean, I think seen this for a while. Skincare has been hot, even through the pandemic. Makeup really suffered during the pandemic, but skincare, I think, really ties into core consumer needs of wanting their skin to be better. And we're seeing over time a blurring of the lines between skincare and makeup. And it's one of the reasons why we have such a big focus on skincare.

Our e.l.f. skincare business is up in the track channels 22% in the second quarter versus a category that was up 7%. And in addition to that, our brand, Keys Soulcare, went out the door 100% clean, and we recently took our clean beauty brand-- pioneering, plant-powered beauty brand W3ll People into skincare, the largest segment within clean. So it's a pretty big focus of ours and we're seeing great success.

EMILY MCCORMICK: You sell through a number of retailers. I always see e.l.f. products on the shelves at Target. I'm wondering where are you seeing the most success here. And I know you also have a couple of new retailers that you're going to be going through in the future as well.

TARANG AMIN: Yeah, so the great news for our business is we're seeing success at every retailer we're at. We've had a long standing presence at Target, which continues to do well. Ulta Beauty, Walmart. And then internationally, both Superdrug and Boots in the UK continue to expand their space on e.l.f. In fact, this last year, we cracked the top 10 in the UK where the number eight brand, and we're the only brand in the top 10 that's posted strong growth over the last year. So we've got a really great business not only in the US, but as we expand internationally as well.

BRIAN SOZZI: How much new shelf space have you gained in Walmart for spring 2022?

TARANG AMIN: Yeah, we've gained-- we haven't disclosed the exact amount, but we've been on a pretty good steady pace of picking up more space pretty much at every retailer we're at. Walmart is going to take a subset of their doors and give us more space, as-- as recently, CVS did and Superdrug and Boots will also be doing. So I think we've had a pretty good-- our track record of kind of growing space over time. And that really reflects the productivity our brand delivers, the consumers we bring to stores, and our innovation.

EMILY MCCORMICK: We always track Piper Sandler's semiannual teen survey, and in that most recent, one we saw e.l.f. rank as number two overall for preferred makeup brands among teens. And of course, I'm wondering, as you look at your customer base here, what do you think is really appealing to the Gen Z customer?

TARANG AMIN: Well, I think first and foremost, it's our extraordinary proposition in terms of having prestige quality at these really affordable price points. The second is our ability to engage them. We're one of the first beauty brands on TikTok. I think our various challenges have billions of views, millions of user-generated videos. We're on Twitch. Many of our consumers play video games, many watch others play video games. So it's really our ability to be where they're at and engage with them in meaningful ways.

We're now also part of pop culture. We recently were the question on Jeopardy, what cosmetics brand stands for e.l.f. Matt Aledo, the 38-time champion, actually got that question wrong. He said what's, ears, lips, face. We jumped on that right away. We made friends with Matt, we had great banter the next day. Our websites went up with Ears, Lips, Face as the banners, and saw incredible engagement.

So it's our ability, really-- and then at the end, we also donated the $8,000 he lost on the wrong answer to Dress for Success, his charity of choice. And so I think our ability to really engage consumers, be able to interact with, remind them of what joy this category delivers, and being at the forefront of that.

BRIAN SOZZI: Tarang, this is going to be a maskless holiday season for-- for many folks after they got vaccinated. Make me a look-- what are some of the top colors that maybe one should be wearing?

TARANG AMIN: Well, I think first and foremost, it should start with the e.l.f. Holy Hydration SPF skincare product. It's one of our best-selling skincare products. I, on this interview, am wearing our putty primer-- our Poreless Putty Primer. It's a fantastic product at $9 versus a prestige equivalent, $52.

And then I think everyone's looking for a pop of color. And so whether you go through the right foundation shade with our CC-- Camo CC Cream, and then finish off with a nice bold lip, I think that'd be a great look for the holiday season.