e.l.f. Beauty, Inc.

Thank you for joining us today to discuss Elf Beauty's first quarter fiscal 26 results. I'm Casey Katton, 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'll find factors that could cause actual results to differ materially from these forward-looking statements. 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 Terang.

Thank you, Casey, and good afternoon, everyone. Today, we'll discuss our first quarter results and our approach to fiscal 2026. I'm proud of our incredible Elf Beauty team for delivering another quarter of industry-leading results. In Q1, we grew net sales 9% on top of 50% growth in Q1 of last year, delivered adjusted EBITDA of $87 million, up 12%, and gained 210 basis points of market share. Q1 marked our 26th consecutive quarter of both net sales growth and market share gains. e.l.f. is the only brand of the nearly 1,000 cosmetics brands tracked by Nielsen to gain share for 26 consecutive quarters. As we look ahead, we see the potential to more than double our business over the coming years given the significant white space we see in color cosmetics, skin care, and international. We believe the acquisition of RODE, which closed yesterday, enhances our position as a leading player in accessible beauty. Let me update you on our progress in Q1. First, in color cosmetics. Nationally, e.l.f. is the number one unit share brand with approximately 15% share, and the number two dollar share brand with approximately 13% share. more than double where we were just three years ago. The combination of our value proposition, powerhouse innovation, and disruptive marketing engine continue to fuel our market share gains. Looking to our value proposition, the average price point for e.l.f. Cosmetics is about $6.50 today, as compared to nearly $9.50 for legacy mass cosmetics brands and over $20 for prestige brands. As we spoke about last quarter, to help mitigate the impact from tariffs, we took a dollar increase on our entire product assortment, effective August 1st. This is only the third price increase we've taken in our 21-year history. With 75% of Elf's product portfolio remaining under $10 post-increase, our community continues to praise our commitment of making the best of beauty accessible to every eye, lip, and face. In Target, our longest-standing national retail customer, we're the number one cosmetics brand with approximately 21% share, growing by 190 basis points in Q1. We're making great progress on replicating our success at Target with other key retailers. We posted triple-digit share gains with all of our major track channel retail partners in Q1. We're also finding success with newer retailers like Dollar General. Dollar General has a stated strategy of serving the underserved, with 80% of stores serving rural markets. Their partnership has been a win-win. e.l.f. is attracting new buyers into the channel with 60% of e.l.f. purchases at Dollar General coming from shoppers who never bought cosmetics at Dollar. And 53% of these shoppers are new to the e.l.f. brand. We're excited to expand our footprint to additional Dollar General stores this fall. Looking to innovation, we have a unique ability to deliver a steady stream of holy grails, taking inspiration from our community and the best products in prestige and bringing them to market in extraordinary value. As consumers continue to seek multi-benefit products and skin-forward cosmetics, we're answering the call with our Halo Glow Skin Tint Mineral SPF 50, priced at an incredible value of $18, compared to prestige items at $48 or more.

Elf just dropped an $18 skin tint. Let's see if this is worth $18. This is stunning. My skin looks like literal glass, like perfection. There's also like not a pore in sight. It like blurred my texture while making my skin super radiant. You know what my reaction to this is? I am shocked that this is e.l.f. This is giving like luxury foundation. This reminds me of the $290 La Prairie foundation. I do not say this lightly. This is Elf's best product to date. Hands down.

Halo Glow Skin Tint was our top-selling cosmetics product in Q1 on elfcosmetics.com. Our holy grail innovation approach is driving share gains across segments. In Q1, we delivered triple-digit share gains across face, lip, and eye makeup. We've more than doubled our share in each of these segments over the last five years. As compared to the 22% share and number one ranking we have in face, we have a 13% share and the number three ranking in lip, and a 9% share and the number four ranking in eye. We believe we have the innovation engine to grow share in these large segments. We're also leaning into our disruptive marketing engine to fuel brand awareness. e.l.f.' 's unified marketing engine fuses insights, innovation, and entertainment and elevates e.l.f. as one of the most talked about beauty brands in the world. We move at the speed of our community. Sparked by the insight that seven of the top 10 most viewed lip gloss videos on TikTok featured TikTokers customizing their own jumbo halo glow lip gloss, we turned fandom into innovation at elf speed. From insight to action in under four weeks, we launched a DIY halo gloss kit exclusively on TikTok shop that sold out in under 24 hours. Turning to skincare. Skincare today drives nearly 20% of our global consumption, more than double the level we had a few years ago, and we continue to see significant runway for growth. We have two of the fastest growing mass skincare brands with e.l.f. Skin and Notorium that are distinct yet complementary in price points, positioning, and audiences. We're leaning into our value proposition and powerhouse innovation with our latest e.l.f. Skin product launch, Our Bright Icon Vitamin CE Froelich Serum, priced at an incredible value of $16, compared to a prestige item at $185.

michaela said that elf made an affordable version of the 182 vitamin c serum i've never added something to my cart so quick in my life at this point we just need to get to the lab and make all of our favorite products this will brighten up your skin tone and lighten up any dark spot that you have this literally feels so good on the skin you guys and it doesn't smell like anything can we just take a moment for the glow you guys like my skin is glowing this glow for 16 absolutely yes so if you did not notice the packaging is giving very luxurious

And the price, $16, unlike the other one that's over $100. You know Elf is always here to give baddie on a budget. I am in love with this serum.

This serum was our best-selling skincare product on elfcosmetics.com in Q1. Elfskin is cultivating cultural relevance with the premiere of Sun Hinged. We reimagine SPF education with a comedy roast of the sun at the intersection of humor and health to drive awareness. Consumer research finds that 91% of people prefer brands that are funny, and 90% are more likely to recall a brand that uses humor.

When you're a stand-up, there are things you dream of doing. SNL, The Tonight Show, maybe a Netflix special. But above all, it's the elf sunscreen show. This is all I've ever wanted.

As we know, we're here to roast the sun.

Oh, my God, the sun is begging me.

There are a lot of risks to not wearing sunscreen, like getting very tan and sexy and skin cancer. So, yeah.

Looking to international. Our international net sales grew 30% in Q1, fueled by growth in our existing markets as well as expansion into new markets. In the UK, our largest market outside the US, e.l.f. Cosmetics outpaced category growth by 3x in Q1, increasing our rank from the number 4 brand to the number 3 brand. As we look to new international markets, we've seen success with our engagement model across social platforms, driving consumer demand well before we enter a country. We saw this play out in Q1 with the launch of e.l.f. in over 1,200 stores with Crowdvat, the number one beauty retail in the Netherlands and Belgium. e.l.f. quickly ascended to the number one brand in Belgium and the number two brand in the Netherlands. We're excited for the international expansion we have planned this fall. e.l.f. is launching with Rossmann in Poland and Sephora in the six countries of the Gulf Cooperation Council. Notorium is also expanding into additional boot stores in the UK and launching with Sephora in Australia. For context, six years ago, we sold $28 million internationally, or about 10% of our sales. Today, we sell $266 million internationally, representing 20% of our sales. We expect that mix to continue to grow as we gain share in existing markets and expand into new markets. As we look ahead, we remain confident in our ability to continue to gain share and capture the significant white space ahead of us. We believe that opportunity is further accelerated with our acquisition of Rode, a breakthrough high-growth beauty brand founded by Hailey Rode Bieber. The acquisition closed yesterday, and we're thrilled to officially welcome the talented Rode team to the e.l.f. Beauty family. I've been in the consumer space 34 years and have been blown away by what Hailey and her team are building. In just under three years since its founding, ROAD has seen exceptional growth, achieving $212 million of net sales in the 12 months ended March 31, 2025, DTC only, with just 10 products. We believe the acquisition of ROAD brings together two like-minded disruptors who are best in class in creating highly desirable brands that deliver high-quality innovation to highly engaged communities. As we combine, our initial focus will be to help in two areas. First, to accelerate Rhodes brand awareness. For context, Rhodes-aided awareness is 20% today in the U.S., half the level of other premium skincare brands, which average 40% or more awareness. Second, we plan to leverage our deep retail expertise and help Rhodes expand their distribution footprint. The team is focused on executing its launch with Sephora, the world's leading global beauty retailer. Sephora's standard approach is to test a brand in a subset of stores before scaling. Given Rode's breakthrough DTC success and Sephora's belief in the potential of the brand, Rode is launching in all Sephora stores across the U.S. and Canada in September and the U.K. by the end of the year. We're excited to accelerate ELF Beauty's global presence with Sephora, building upon the successful partnership we've had since launching ELF in Sephora, Mexico last year. We've been disrupting and driving industry-leading growth for 21 years in service to our growing communities around the world. As we look ahead and now further fuel by road, we see an opportunity to more than double our business over the coming years with significant white space we see in color cosmetics, skin care, and international across our portfolio of brands. I'll now turn the call over to Mandy to talk more about our first quarter results and our approach to fiscal 26.

Thank you, Terang. Q1 net sales of $354 million grew 9% year-over-year, on top of 50% growth in Q1 of last year, primarily driven by continued growth in unit volume. Our net sales in the U.S. grew 5% year over year in Q1, while international net sales grew 30%. We are pleased to see continued momentum in consumption, with our growth outpacing category trends, leading to 210 basis points of market share gains in the quarter. Q1 gross margin of 69% was down approximately 215 basis points compared to prior year. The year-over-year decline was driven by incremental tariff costs, partially offset by favorable foreign exchange impacts on goods purchased from China and mix. On an adjusted basis, SG&A as a percentage of sales was 50% in Q1 as compared to 51% in Q1 last year. Marketing and digital investment for the quarter was 22% of net sales as compared to 23% in Q1 last year. Marketing spend for the quarter was lower than planned as campaign spend shifted into Q2. We continue to expect marketing and digital spend at approximately 24 to 26% of net sales in fiscal 26, in line with the range we targeted in fiscal 25. Q1 adjusted EBITDA was $87 million, up 12% versus last year. Approximately seven points of that year-over-year growth was driven by an unanticipated foreign currency gain of approximately $5 million due to quarter-over-quarter fluctuations between the British pound and the U.S. dollar. Adjusted net income was $51 million, or $0.89 per diluted share, compared to $64 million, or $1.10 per diluted share, a year ago. The decrease in adjusted net income and EPS metrics was primarily driven by a more normalized tax rate as compared to Q1 last year, which included discrete tax benefits related to stock-based compensation. Moving to the balance sheet and cash flow. Our balance sheet remains strong and we believe positions us well to execute our long-term growth plans. We ended the quarter with $170 million in cash on hand compared to a cash balance of $109 million a year ago. I'm also pleased with the $20 million in free cash flow we generated in Q1, up from half a million dollars a year ago. Subsequent to quarter end, we closed on our acquisition of ROAD. As a reminder, we financed the $800 million upfront transaction with an incremental term loan of approximately $600 million, as well as $200 million or approximately 2.6 million shares of Elf Beauty common stock issued directly to the equity holders of ROAD. Our liquidity position remained strong with relatively low leverage post the transaction. We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. The specific initiatives we're focused on this year include investing in our people and infrastructure, our ERP transition to SAP, and our international expansion. In July, we officially went live on SAP. While it's still early days, I'm pleased to report that our go-live was successful and our business is transacting. As you all know, these are significant undertakings. Our smooth go-live is a testament to the exceptional talent and dedication of our Elf Beauty team members and partners. Now let's turn to Fiscal 26. As we spoke about last quarter, we are planning to provide a full year Fiscal 26 outlook once we have greater certainty on tariffs. Unfortunately, there continues to be a broad range of potential outcomes. To set the foundation, about 75% of our global production today comes from China. Between April 9th and May 13th, we were subject to tariffs at the 170% level. As of May 14th, product imports to the U.S. are subject to tariffs at the 55% level. 25% of that was put into place in 2019, plus an incremental 30% that is now in place through mid-August. Beyond this date, the tariff rate remains subject to ongoing negotiations. For these reasons, we are waiting for greater clarity to issue a full-year fiscal 26 outlook. For context, if tariffs were to remain at this incremental 30% level, we estimate the gross impact to our cost of goods sold to be approximately $50 million on an annualized basis. And as we spoke about last quarter, our tariff mitigation plans are already underway through three key vectors, pricing, supply chain optimization, and business diversification. With that said, we do have better visibility into how we expect the first half of the year to shape up, and I'd like to provide some color on our approach. From a top-line perspective, we expect to deliver net sales growth in the first half of the year above the 9% growth that we delivered in Q1, primarily given the incremental contribution from ROAD for about two months of Q2. Note, we are not benefiting from the road sell-in to Sephora as that occurred prior to closing. From a profitability standpoint, we expect adjusted EBITDA margins to be approximately 20% in the first half of the year, which we believe is quite strong in this macroeconomic environment. On a quarterly basis versus Q1, this accounts for flowing through more of our higher tariffed COGS, the timing shift in marketing campaign spend, and the inclusion of ROAD in our consolidated financials. In summary, we're pleased to have delivered another quarter of industry-leading sales and market share growth. We believe we have a winning strategy and are in the early innings of unlocking the full potential we see as we welcome ROAD to our growing portfolio of disruptive brands. With that, operator, you may open the call to questions.

We will now begin the question and answer session. To ask the question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Susan Anderson with Canaccord. Please go ahead.

Hi, good afternoon. Alec Lake on for Susan. A question on the tariffs. Can you talk about how much inventory might be trapped at the 170% rate versus the 50% rate? And if there's any way to talk about the potential timing of it flowing through the P&L? Thank you.

Hi, this is Mandy. So on the tariffs, we talked a little bit about this last quarter. there was a period of time that we were purchasing at that 170% level. And so right now what we have in inventory is a mixture of that 170 and the 55 plus some that is even at the 25% level that we were previously subject to. What we expect for Q2 is more of that 170% to flow through, and so that's why we called that out on the call, just expecting more of that flow through in Q2, so would expect to see kind of a lower growth margin quarter over quarter as we go through.

Thanks. And then just to follow up, so the first half EBITDA margin guide, it kind of implies a, you know, 500 to 600 basis points deleverage for EBITDA margins in second quarter. How much of that should we think about as coming from Gross margin versus SG&A when you include there's a lot of moving pieces of the tariffs, the road acquisition, maybe some incremental investment. Thank you.

Yeah, so that first half EBITDA margin that we called out, the implications on Q2 really driven by three factors. One is the gross margin, as we just talked to, flowing through more of those tariffs in Q2. Secondly is the shift in marketing spend. So we did have some campaign spend shift from Q1 into Q2. And then lastly is the addition of ROAD into our SG&A, again, without that benefit of the sell-in to Sephora from a top-line standpoint. Overall, still quite strong, I would say, from an EBITDA margin standpoint at approximately 20%, just given kind of the macro that we're operating in.

The next question comes from Dara Mofinian with Morgan Stanley. Please go ahead.

I was just hoping, Mandy or Karang, you could expand a bit on the greater than the 9% sales growth that was posted in fiscal Q1 comment for the first half. A, does that comment hold without ROAD? I think, Mandy, you mentioned that ROAD was in there, so just a clarification there. And maybe just through some of the key puts and takes as you think about fiscal Q2 versus fiscal Q1. just conceptually how you think about the business. I know we won't get quantification, but a lot of moving pieces with pricing, the consumer demand reaction to pricing, the retailer ordering patterns, the base business volatility. So just any conceptual thoughts around those areas would be helpful, just as you think about the underlying business sequentially fiscal Q2 relative to fiscal Q1. Thanks.

Thanks for the question, Dara. So on your first question, we have not broken out what's else versus road. We just wanted to acknowledge that for Q2, we will have the addition of road into our financials. And so that will help to drive Q2 higher than what we saw in Q1. On the ELF business in particular, we're really pleased with what we're seeing on the ELF business. One, I would say our fall innovation continues to perform well. We talked about pulling our melting lip balms up to launch earlier. Our community was asking for that. And so when you think about that performance, and now we're cycling fall in the base, you know, fall last year in the base, we're still seeing a positive result overall for fall 25 innovation. So feeling very pleased with that. And I would say that our objective is just to continue to build share, just like we did in Q1. We built 210 basis points of share in Q1 across all three segments, eyes, lips, and face. And so feeling very good about the ELF business, the underlying ELF business as we go through. And to your point, pricing will be something that kicks in. We'll see where the consumer nets out on that. But as you know, when we talked about issuing pricing or having to take that dollar price increase back in May, consumer sentiment was positive for us. And so we're really going to be watching for the elasticity and the response there at Shell.

Okay, great. And then just as a follow-up, Broad EPS accretion as we think about this fiscal year, separate from the base business. It looks like the acquisition will be significantly accretive. Just give us a sense for how you're managing that. Is there a lot of spend back behind the business near term there, you know, given the expansion in Sephora? And maybe just touch on the underlying level of revenue growth for the business. versus how it existed last year just with the Sephora launch coming up and obviously the strong base business growth trends on top of that. Thanks.

Yeah, so we're quite excited about the road launch into Sephora. And as we talked last quarter, even with the investments that we want to make back into the business, we still expect this to be accretive overall. So very pleased with that. And we're pleased with what we're seeing out of road. You know, they had their Limitini launch. launch of their lip peptide, and that went really well for them. We're just so excited about all the signals that we're seeing on road. And from a financial standpoint, we'll be back to you next quarter, hopefully in a position to give guidance once we have more clarity on tariffs to really give you a more fulsome picture on what we're seeing.

Okay. Thank you, guys.

The next question comes from Olivia Tong with Raymond James. Please go ahead.

Great. Thanks. Good afternoon. I wanted to dig a little bit deeper into the U.S. core business and whether you could talk about your top-line growth expectations there, particularly in comparison to scanner, which has decelerated a little bit of late, and then your view on the 9% target, 9% plus target, excuse me, for first half. Clearly, above 9 has no upper limit, but if we take the 9 end of that, it would suggest that X road results could be down year over year. And I guess, could you tell us in your view, is that on the table for Q2? Thanks.

Yeah. So as I said, Olivia, we still feel great about the ELF business. That includes our U.S. core business. The deceleration from a Nielsen standpoint, again, is really driven by us starting to cycle a full fall in the base. So we had the benefit earlier on of launching our melting lip balms earlier, and so now we're still seeing fall overall positives. So that's fantastic for us. I would say on an X road basis, there is not a scenario that we're contemplating as we talk about the better than 9% that would have else business down on a year-over-year basis. We just talked about in Q1 seeing our U.S. business up 5%, our international business is up 30% in Q1, and picked up 210 basis points of share in the quarter. So we really see a lot of strength behind the else business.

Great, that's super helpful. And then can we talk about the further expansion into Sephora, which sounds great, you know, Mexico, now Middle East. So, you know, Notorium as well, could you talk about your conversations with Sephora as you build more and more in international markets? If you could give us a sense in terms of, you know, the lineup that's going into those markets those markets? Is it more the hero products? Is it across the board? Just to give us a sense of what the opportunity is there for us, for you. Thank you.

Hi, Olivia. This is Terang. We're extremely excited about our expanding partnership with Sephora. Let me just back us up a little bit. It was last year that we entered our first with the Elf brand, our first Sephora market with Sephora Mexico. It was one of the best launches they've seen. I think we've continued to maintain a top three position. across all of Sephora in Mexico. And one of the things that they really liked about the ELF launch is we brought in a whole new consumer set, our younger, more diverse, engaged consumer. And so they really liked that dynamic. So we've been talking to them about a number of different markets. We're quite obviously, biggest thing that we're excited about is Rhodes launch into all US and Canadian. Sephora doors in September, followed by the UK end of year. We're also excited about entering the six Gulf Cooperation Council countries with ELF, and that's going to be the full assortment, similar to what we did with Sephora Mexico. It's all of our core franchises in that. It's going to be... The launch, again, similar to Mexico, we're expecting a big launch there. And then last but not least, Notorium entering Sephora in Australia. We feel really great about it, too. So we can see potentially additional Sephora markets over time. And as we confirm plans, we'll talk about it. But overall, feel really good about the expansion with Sephora.

Thank you. The next question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Thank you, and good afternoon. I wanted to follow up on the answer regarding the U.S.-based business. Mindy, you mentioned that, you know, it's been growing about 5% for the U.S. I was curious to see what is the exit rate in the quarter. And then also with the price increase, the $1 over your average price of $6.50, is roughly, it's a mid-teens price increase, and understandably, you're banking some, you know, you're assuming some elasticity there. But you're still going to have July and August, I'm sorry, August and September, the benefit of that. So I was curious to see, really, in a scenario where you see this 5% accelerating, given the price increases and also the innovation that you spoke about. Or is that too... still optimistic given how the consumer has been behaving.

Hi, Andrea. It's great to hear from you. So on the US business and taking into account the price increases, as you know, our approach is to always take a balanced approach. And in this instance, we're being a bit conservative on how we're modeling that internally. In our past price increases, we have done better than we've modeled from an elasticity standpoint. But with these increases just going in on August 1st, we're still reading how the consumer will respond to that. It will take a couple weeks for that to fully roll out within retail. And so that is something that we're watching for. And I also acknowledge, you know, the consumer overall sentiment right now. As you've heard from another of consumer companies, they're continuing to be choiceful with how they're spending. I think from our perspective, the great thing is even with this price increase, Seventy-five percent of our portfolio will be at $10 or below, so still very much a value for our community, and we're feeling great about that.

Thank you. The next question comes from Mark with Baird. Please go ahead.

Good afternoon. Thanks for taking my question. Another question regarding the price increases. I'm curious how your retail partners have reacted to that. What's the feedback you've received? And as they're placing their orders, are you seeing them temper unit orders in anticipation for some consumer elasticity?

Hi, Mark. This is Terang. Overall, retailer acceptance has been good for our price increase. I think part of the reason why is we're very choiceful when we take price increases. We've only taken three increases in our 21 year history and have had a really good track record in terms of how that's executed. We take quite seriously our responsibility to deliver an extraordinary value to our community. And so even the way we've taken pricing of first letting our community know being transparent has been well received by our community, well received by our customers. The other thing I will tell you is we are hearing of a number of brands that are going to be taking pricing. So I think we're just in that environment right now with the uncertainty of tariffs and the tariff impact that you will probably see more companies take pricing. We tend to lead, and then we will see how many more kind of follow us.

Thank you. And then I understand, Mandy, there's a lot of noise in Q2 on gross margin, given there's some goods flowing through at the much higher rates. But as we think kind of moving forward, if the 30% were to stay in place, is the dollar enough to neutralize the margin impact?

So we haven't given any color into that, Mark, because as I just talked about earlier on the pricing piece, we're looking to see how that elasticity plays out in order to be able to more fully answer that question. And again, with the wide range of outcomes on tariffs, we're watching to what happens on August 12th next week when there is supposed to be further talks on China tariffs. And so I think we're just going to have to wait and see how things play out there.

Got it. Thank you.

Yeah. The next question comes from Oliver Chen with Cowen. Please go ahead.

Hi, Turing and Mandy. Within the U.S. ELF brand, what channels or partners have been stronger or weaker in terms of what you're seeing in the U.S. market and the choice for U.S. consumer? And as we think about ROAD, which is very exciting, What are your thoughts on international and global development and also potential exclusive product for Sephora and initial thoughts on what might be most exciting for categories? There's a lot of tons of opportunity for you to pursue many things with ROAD. Thank you.

So, Oliver, great to hear from you. On the U.S. ELF brand situation, From a channel standpoint, we had growth in our brick-and-mortar channels, our core retailers, as well as in e-commerce. And so I'm very pleased with what we're seeing there. Like I said earlier, from a net sales standpoint, in the U.S., had 5% growth in Q1 overall.

Were there channels that were – Yeah, sorry, go ahead. Go ahead, Oliver.

Were there channels that were – which ones were weaker or which ones were – We're less positive to those, if you could share that with us as well.

Yeah, we've just not broken out that level of detail, other than to say, you know, we continue to make progress in Q1 in the U.S., again, picking up share 210 basis points in the quarter across all segments, and so really pleased with our performance.

And then, Oliver, to your second question on ROAD, our near-term focus is really to execute with excellence the launch into Sephora and all U.S. and Canadian doors followed by the U.K. There certainly will be other opportunities for further international expansion. I think we mentioned last time on the call that the vast majority of Haley's followers are outside the U.S., but that business still only has about 20% outside the U.S., so we have massive runway for growth for roads similar to the pent-up demand that we see for ELF every time we go into a new country. Great. Thanks.

Best regards.

The next question comes from Peter Grom with UBS. Please go ahead.

Thanks, Operator. So I wanted to just ask on road and trying clearly a lot of growth for the brand the last few years, but you touched on this in response to Darren's question that the brand is performing well. But we've seen some pretty exponential growth over the last few years. So, you know, as we think about modeling the brand, you know, getting that to the sell-in isn't going to be on your results, but maybe just could you help us understand bigger picture, you know, the level of growth that you're seeing or that we should expect? And then you mentioned that you would expect the brand to double over the next few years. Is that a broad-based comment or do you kind of have a clear target in mind in terms of when you would expect that to happen?

So hi, Peter. We haven't disclosed the specific growth rate on road other than to say it went from zero to $212 million in three years, DTC only with just 10 products. So it has massive potential ahead of it, particularly with the launch into Sephora. And I would say in terms of, you know, we're going to continue to accelerate it, similar to how we've accelerated the growth on Notorium, getting Notorium into Ulta Beauty, into Boots, into Shoppers, and continue to expand. The other thing we're going to do on road is we're going to take, since it is quite accretive, we are going to invest back into more marketing to drive that awareness. The aided awareness is 20%, which is great for a brand that's just three years old, but still less than half what some of the prestige skincare brands are. And then certainly I mentioned executing Sephora well, and then they have a very strong innovation program. So really bullish on road and what we can achieve there. And then in the commentary of doubling the business, we're talking about the overall BELF company, that with the white space we have in color cosmetics, skin care, and international, we see in the coming years the ability to more than double up our overall business.

Okay. Thanks for that. And, Mandy, I just want to ask you on margins. Just in the context of the weaker second quarter, and I get tariffs and elasticies remain wild cards here. But can you maybe just help us understand how you would anticipate margins performing, you know, in the back half of the year? I guess, you know, when you look at the second quarter, what costs could be transitory, what could stay? And I guess it just seems like it would be a pretty big step up from mid-teens to kind of get back to 20% plus on the surface sequentially. So just if you could help us understand that, that would be great.

Yeah. So what we're looking at for the first half of the year, remember, for the majority of the first half of the year, that's pretty much an unmitigated tariff that we haven't put the pricing into place until August 1st. We are continuing to work on the other two aspects of tariff mitigation, our supply chain diversification, as well as our business diversification, continuing to expand internationally. So all of those things are at play. But I would say for Q1 and Q2, you're flowing through those higher rate of tariffs without a real offset from a mitigation standpoint. And so as I think about the second half, you'll have to wait until we give full year guidance to get a full answer there. But I can just tell you what we're seeing for the first half is you know, that margin, gross margin pressure in Q2, mainly because we're flowing through those carobs without a lot of the offsets yet firing. Got it.

Thanks so much. I'll pass it on. Yeah.

Next question comes from Ashley Hogan with Jeffrey. Please go ahead.

Hi, this is Sydney on for Ashley. Thanks for taking our question. Just wondering, we've seen a bit of a gap with unit sales outperforming dollar sales in the scanner data. Wondering if you can speak to kind of what's driving the gap in that trend, possibly connected, what are you seeing in terms of promotion in the channel? And then if you can share expectations for innovation in Q2 and how that will compare to what we saw last year. Thank you.

Yeah, so we're really pleased with the volume growth that we've seen, both in our total business. So on the call, we talked about volume really helping to drive our net sales growth in Q1. And we've seen that as well from a scanner standpoint, continuing to be volume driven, which is great to see. From a category standpoint, I wouldn't say that we've seen an acceleration of promotion in the category. You do see from here and there, you know, retailers or categories going on promotion, but I wouldn't say that that is exponentially higher than what we've seen normally in this category. And I would say from an innovation standpoint, we're very pleased with the innovation Our fall innovation that we've launched, we've talked a lot about the melting lip balms, but we also have our skin tint with SPF 50 that you heard on the call, Michaela, saying it's pretty much the best product we've ever launched, which is fantastic. And then also continuing to speak to value for our consumers with the Sheer Fort Blush, which is priced at $6. That's really resonating in the market as well. And so really pleased with what we're seeing from an innovation standpoint.

The next question comes from Bill Chappell with Truist Security. Please go ahead.

Thanks. Good afternoon. Good afternoon. Just kind of as we look at 1Q versus 4Q, when we were back several months ago, the thought was in January, February, there was a little bit slowdown of the overall category in the U.S., your Holy Grails weren't, I guess, performing as well as the prior year ones were. And, you know, and there was just a, obviously, tougher comps. As you look at the acceleration these past three months in the U.S., you know, maybe give a little color on what changed. Did the new batch of Holy Grails start to pick up? Did the existing ones start to gain traction? Did the comps just get easier? Did the category get better? Any thoughts on kind of why we saw the progression over these past three, four months?

Yes. hi bill um so i would say that you're right in four we were up against a lot of things we talked about the social chatter around beauty was down you had the wildfires in la you had tick tock potentially going away and our spring innovation we had talked while great was at about half the rate as it was the prior year and so we had a lot of things going on in that time frame fast forward to q1 I do think the category found a little bit of stability as we went through. Our fall innovation is better, as I spoke to you, on the whole, and the earlier launch of that melting lip balm certainly helped that. And so we are feeling like ELF is in a better place. As you saw, we've picked up, continue to pick up market share, which we've done now for 26 consecutive quarters, and so really still focused on the main things, which are making sure that we are a value to our community. And like I said, even with the dollar price increase, still 75% of our portfolio, $10 or less. Making sure that we're continuing to launch powerhouse innovation, and we have shown that and getting a lot of positive feedback from the community on our fall innovation. And then just making sure that we're continuing to invest in high ROI marketing, making sure that we're being the first to do things. As we talked about, being funny and bringing humor into the category is a big thing and helps consumers remember who we are. And so really continuing to do the things that have worked well for us and keeping our eye on how we continue to grow share here in the U.S. and also in our international markets.

Got it. Well, then just kind of follow it up on innovation. I mean, do you feel like the spring innovation just took a little bit longer and now it's taking off or we just moved to the summer innovation and fall innovation and those were bigger wins?

So for spring innovation, it was still at around the same performance as it had been. Remember, the prior year's innovation was exceptional. It was the best class of innovation that we've ever launched as a company. And so the spring innovation is still great, second best year that we've had from a spring innovation, but just not as much. And that prior year innovation was really driven by the lip oils, which has been one of our most successful launches that we've had.

Great. Thanks for the color.

The next question comes from Rupesh Parikh with Oppenheimer. Please go ahead.

Good afternoon. Thanks for taking my question. So I'm going to ask two questions that I'm not sure if you're going to answer. I'm going to try since I've been getting emails on it. So just for Q2, for ROAD, is there any way to help us understand like the revenue contribution for that business? And then also for ROAD, you know, I know EBITDA margins are expected to be down in Q2, but is ROAD expected to be diluted to your Q2 margins?

Hi, Rupesh. Great questions, but detail that we have not provided overall. Other than to say that we feel great about ROAD, we believe over the longer term, as we talk about a full year and thinking about how ROAD comes in and will it be accretive, we have said that we believe it will still be accretive overall. As we think about bringing in that SG&A in Q2, I think we called that out specifically because we don't have the sell-in to Sephora to match with those expenses. And so I wanted to be clear on calling those out. That's why we included those in the prepared remarks.

Okay, that's helpful. And then just on international, you know, strong momentum this quarter. Is there any way to help us frame some of the puts and takes as we think about Q2 in your international business and your ability to sustain that momentum? Sure.

Yeah. So one thing that we talked about last quarter was that in the first half of last year, we had a lot more international activity selling than we do this year. And so I think that still holds true as we look at Q2 and just thinking about a first half or second half dynamic. Other than that, you know, we're continuing to be pleased with what we're seeing from international. We talked about the launches that we're going to have with Sephora coming up, both on the ELF and Noturium sides of the house, as well as the expansion, further expansion in boots on Noturium, and just continue to expand in Poland with Rossman. And so very pleased with what we're seeing from an international standpoint.

Great. Thank you. Best of luck.

Yeah. Thanks. The next question comes from Steve Powers with Deutsche Bank. Please go ahead.

Great, thank you very much. Mandy, I just wanted to circle back on 2Q gross margins if I could. I understand the tariff flow through, but on the other hand, you mentioned not that many offsets. I just want to press on that a little bit, because you will have effectively two months of pricing benefits this quarter that you didn't have in the first quarter. And even without the sell-in to Sephora, I would assume that two months of road sales also gross margin accretive. So just maybe a little bit more context on the puts and takes in 2Q gross margin, if I could.

Sure. So I think you've got it right, Steve. You know, we are taking the approach that we will see more of that higher tariff flow through and want to make sure we're being balanced in that expectation. You're right. We will have the pricing benefits in Q2, and then we also will have road coming in. to the fold as well. And so those are two good guys in this scenario, but also want to be mindful that we do have those higher tariffs yet to flow through. And also considering, you know, what happens next week with tariffs. Do we maintain at this 55% or does that move to a different number? And so, again, just keeping in mind the number of scenarios that can happen from a tariff standpoint.

Yes. Okay. Very good. And then maybe related to that, So I think early in the call you said you hadn't talked about whether the pricing would be enough to kind of offset the dollar basis of tariffs, et cetera. I think, Tarang, you mentioned last quarter that at the 30% incremental tariff rate, it was about a $50 million annualized hit to COGS. That, to me, strikes me as like a mid-teens impact to base business COGS. the pricing seems to also be a mid-teens increase. So it seems to me that unless elasticity is such that bonds go negative, all is equal at that 30% rate, you should be pricing to maintain, if not, you know, exceed a little bit of coverage there and maintain gross margin. Is that math or logic wrong?

Yes, Steve, you got it right. We talked to 30% incremental. It was about $50 million. The assumption, we're always more conservative on how we model elasticity. Now, last two price increases, we've done way better than what we had modeled. And if that held true, then you would see some upside relative to what we talked about. But we also don't want to get ahead of ourselves, just given the number of brands that we hear are going to be taking pricing. So we're just being more cautious on that until we see how the pricing is accepted.

Okay. Okay. Very good. Thank you very much. Thanks, Steve.

The next question comes from Anna Lazul with Bank of America. Please go ahead.

Hi, good afternoon. Thank you so much for the question. I was wondering how you're thinking about the longer-term strategy here with ROAD. There's a limited number of products across cosmetics, skincare, accessories. There is also a privately held cosmetics competitor, which recently launched a fragrance line. So I was wondering how you're thinking about the products here and the categories where you compete. Thank you.

One of the things, Anna, that we love about ROAD is just how curated the product assortment is. It's incredibly thoughtful. And it has a beautiful aesthetic. And certainly you're seeing that in terms of the response from consumers and just how much they can't get enough of road. And so we will approach it is that same thoughtful approach Haley's taken and the team has taken on innovation. We'll continue to do that. You saw a couple of recent launches from road. There'll be additional launches as we go forward, but continue to make sure that it matches and focus of the brand. So I think, you know, we have a lot of confidence in what we've seen in terms of the innovation pipeline as well as other ideas that we're talking. So I think similar to Elf Beauty, you're going to continue to see game-changing innovation on road, and we feel really great about it.

Great. Thank you so much.

The next question comes from John Anderson with William Blair. Please go ahead.

Thank you. Trying to maybe I don't apologize if I didn't hear it, but did you comment on the digital sales growth in the quarter? I would love to get an update on that and what digital represents as a percent of the total business at this point. And then on international, you know, you mentioned it's about 20% sales today. But as you look to doubling the business over the next several years, the total business, do you have kind of a, target in mind for international contribution overall? And then last on innovation, you've pulled forward some innovation, fall innovation earlier in the year with the request of customers, et cetera. Does that create any kind of an air pocket in the pipeline for the second half of the year or how to think about that? Thank you.

Yeah. So I'll take the first question on the digital sales growth. Overall, in our e-commerce channels, we saw – close to a 20% growth rate overall, and it represents about 20% of our business. And so fairly consistent with what we've seen over the last several quarters. Digital continues to be very strong, especially with the Amazon business, which in our 10K you saw crept into one of our top customers, and so very pleased with that performance.

And I'll take the next two. In terms of the international business, we have very high aspirations for international. And part of where those aspirations come from beyond just only 20% of our businesses outside the U.S. is the success we're seeing retailer after retailer and country after country. The launches we've had in the past year, I think we've debuted in the top three spot in every single retailer we've entered. And so you do see plenty of pent-up consumer demand for e.l.f. And so as we continue to roll out into more countries, we see that 20% being much higher over time. I don't think we've disclosed an overall aspiration other than we expect our international business to more than double in the coming years as well, as we talked about in terms of the opportunity we have in color and skin. And then from an innovation standpoint, we have that ability, and you've seen us do this in the past, whether it be our lip oils, whether it be our bronzing drops, where we'll take signals from the community, and we will pull something up faster. Like our original timing for bronzing drops was not when it was going to launch, but we got so many requests from our community of wanting that information. incredible formulation at a great value that we moved it up. We did the same with the melting lip balms where we're just getting so much consumer for that item that we moved it up. But it did not cause a hole in our fall innovation calendar. As Mandy said, our fall innovation is stronger than our fall innovation last year. Some of the other items that we talked about are off to a great start. And so we feel great about the overall innovation cadence, including that ability to be able to respond to what our community wants. Thanks so much.

This concludes our question and answer session. I would like to turn the conference back over to Tarang Amin for any closing remarks.

Well, thank you for joining us today. I'm so proud of our incredible team at Elf Beauty for delivering another quarter of industry-leading results, and I'm thrilled to officially welcome Rode to the Elf Beauty family. We look forward to seeing some of you at our upcoming investor meetings and speaking to you in November when we'll discuss our second quarter results. Thank you and be well.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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