e.l.f. Beauty, Inc. Aktie

All right. Thank you, everybody. For our next session, I'm very happy to welcome back e.l.f. Beauty to the conference. And with us our Chairman and Chief Executive Officer, Tarang Amin. Thank you, Tarang, for being back.

Well, thank you for having us.

We have limited time, so let's just dive in. And I guess we'll start broad and maybe update everybody just on how you're feeling about the business and the category amidst what we've all been talking about this week as a relatively challenged consumer.

Sure. So I'd say a little bit of background on e.l.f. Beauty. We've existed for 22 years. We were founded almost 22 years ago with this radical idea of selling cosmetics over the Internet for $1. Everyone thought the founders were crazy. This is pre iPhone, you couldn't sell cosmetics over the Internet. I certainly couldn't make money at $1 doing it, but they figured it out while we've migrated since core fundamentals of the business have remained intact for over 20 years, which is making the best of beauty be accessible for every eye, lip and face.

And we've seen tremendous success because of that. I think we most recently reported our 29th consecutive quarter of net sales growth for those keeping track, that's 7 years of continuous growth, averaging at least 20% growth per quarter from a net sales standpoint. Our namesake e.l.f. Cosmetics brand has built over 900 basis points of market share over those last 7 years. We have an incredible portfolio. e.l.f. SKIN is now a top 11 skin care brand in the U.S. In addition, we've had 2 major acquisitions. Naturium, the clinically effective biocompatible skin care brand we acquired about 3 years ago, is currently the fastest-growing skin care brand in the U.S. amongst the top 50. We've more than doubled its sales to over $250 million of global retail sales.

And then rhode, which is a brand that we acquired in August Hailey Bieber's brand. It's probably one of the most phenomenal brands I've ever seen. It is in our last fiscal year, which we just finished did about $390 million of net sales annualized and that's in less than 20% of Sephora doors. And as far as Sephora is concerned, rhode had the most successful launch of Sephora has ever seen in its history in Sephora North America, Sephora in U.K. and [ Mecca ] in Australia and New Zealand.

And we're very excited to be launching rhode all throughout Europe this fall. So I would say, in the backdrop of a challenging consumer segment, one of the reasons why we've continued to be successful is because we offer extraordinary value to the consumer, prestige quality at a fraction of the price. Every single one of our brands is accessible. Even though we cover different price tiers. So e.l.f. Beauty has this incredible value proposition. Average unit retail is around $7. Naturium is in the masstige price range, closer to $18 and rhode is entry-level prestige. But each of them are accessible relative to -- if you look at the quality of the products and what they offer.

And so I think that's helped us really over a pretty long period of volatility from a consumer standpoint, going all the way back to kind of even the pandemic, post-pandemic, inflationary pressures. You name it, we've been able to navigate that with consistency. And as great as all of that is, what I'm most excited about is the tremendous white space we have across our portfolio.

Yes. So let's talk about that, as you say, over the last 7 years, during not a simple environment to navigate. As you think about the building blocks of historical growth and then you look forward to the next 7 years, how many of them remain sort of intact and it's more building on that momentum? And how are things maybe changing and different elements of the portfolio requiring different efforts to drive future growth?

Sure. So if you think of e.l.f. Beauty, we have 4 durable competitive areas of advantage. And we believe all 4 of them are equally relevant for the next 7 years as they have been for the last 7 years. The first is our passionate team of owners and high-performance team culture. We're unique in our space in that we grant equity to every single employee every year. So every employee at e.l.f. is a meaningful shareholder in the company, and we train in high-performance teamwork.

And the reason why that's important to you as investors is the level of engagement we have from an employee base is off the charts. 97% recommend e.l.f. as a place to work, over 94% extremely strong engagement. And you also see it in the level of productivity of our workforce, where the net sales and adjusted EBITDA per employee is miles apart from any of our competitors that it really talks, I think our most important durable advantage is the passionate team that we have and high-performance team culture.

The second big advantage we have is that value proposition. So as I mentioned, on e.l.f. Cosmetics, our average unit retail is about $7. Most legacy -- most of our legacy mass peers are about $11, so a pretty sizable difference and prestige over $20. And the reason why that's important is sometimes people pay attention to the price point. The key for us is we've been able to engineer in better quality every single year for the last 10 years. So with e.l.f., you really have no compromise. You get prestige level quality at a fraction of the price. And that value that I talked about, not only on e.l.f. SKIN, but across our portfolio is a second core advantage, and we believe value, I mean, it's always in Vogue regardless of where the economy is.

The third advantage we have is our powerhouse innovation. We have a unique ability of taking inspiration from the best products in prestige as well as what our community is looking for putting our e.l.f. twist on and bringing it at an extraordinary value. So -- and that has been pretty consistent over time. And it's one of the reasons why if you look in the cosmetics category, we have 22 segments where we have the #1 or #2 position in color cosmetics. And the way we've built that market leadership in the 22 segments is through innovation and the consistent track record of innovation year after year and a volume that really responds to what our community is looking for.

And then the last advantage is our disruptive marketing engine. We are, by far, the #1 brand amongst Gen Alpha, Gen Z and millennials. And that strength is really built on our ability of living with where our community lives, being pioneers on different platforms and the level of kind of engagement that we do, we sometimes say we have -- we're an entertainment company that happens to sell beauty products, but the level of kind of disruption that we have in marketing and that engagement model.

So I'd say those are our 4 advantages that have really propelled our business over actually last at least 7 years, maybe even longer, and we believe are just as relevant for the next chapter over the next 7 years.

One thing that I -- it feels to me at least may be different as you move forward is the fact that the portfolio itself has evolved. So this -- the growth going forward is going to be more reliant on multiple levers of growth across multiple brands and really across multiple geographies, which we'll talk about. I guess that portfolio management capability, how does that -- I guess, how well developed do you feel that muscle is? And how does that maybe change the outlook going forward as you have to balance investments across multiple brands?

So I think one of the strengths of this business today, those who follow the company for a long time is the strength of the portfolio and how we're managing that portfolio. If you look at e.l.f. Beauty over our 22-year history, I think we've shown growth in all but maybe 2 quarters. There are 2 quarters in 2018 where we didn't grow where we -- like any business, you hit a soft spot.

And in 2018, when we hit a soft spot, the only business we had was e.l.f. Cosmetics. So if you hit a soft spot, you're really dependent on that, we have a much richer portfolio. I talked about the growth rates as well as the prospects of our entire brand. And then our approach is different. We were not every brand in our portfolio is important. When we look at acquisitions, we have an exceptionally high bar. It has to meet our vision first and foremost of building a different kind of beauty company, one that disrupts norms, shapes culture and connects communities.

Most brands drop off right there. The level of white space that we see, obviously, the financial profile, those things are table stakes but the team is actually really important too. So we're different than other companies is when we do acquisitions, part of our underwriting case is, we don't assume any synergies. We actually want the entire team that's been doing an exceptional job building that business and we bring them all over.

I'll give you an example of rhode. Nick Vlahos, who is the CEO of rhode, Nick and I worked together back -- all the way back in Clorox days. So I've known him for 20 years. Incredibly strong consumer background that entire team. All the founders came on board, the entire team came on board. And our approach is how do we enhance the team, what capabilities you need. In rhode's case, they're about to enter Sephora. We help build out their field sales team before we even closed the transaction. We talked about investing more in the brand. It's accretive to the overall company. So we can make those investments and still have it be accretive shoring up kind of the innovation capability, particularly from an R&D scientific standpoint.

And so that's allowed us to manage this portfolio really well where the people focused on e.l.f. highly focused on e.l.f. and continue to be -- we have a dedicated team on Naturium, a dedicated team on rhode, even a dedicated team on e.l.f. SKIN as we take a look, and that really has allowed us to be able to pursue the white space across the brand portfolio. And then our role, like I said, we're different than other companies. Our role is how do we help support a founder's vision and enhance it. So that goes really early on in the diligence process of what are we trying to accomplish, and where can we add value. So it's more of a pull model, which really allows us to manage that portfolio and be able to pursue multiple vectors of growth at the same time.

Yes On rhode, again, the momentum, I mean, has been exceptional. Your outlook for '27 implies strong momentum certainly into the first half of the year and beyond. I guess one of the questions from investors is just on the plus side, can it be better, right? On the other side of the coin is not so much will fall short in the near term, but just how long it lasts. So how do you think about both those aspects? What are the potential levers of upside? But also, how are you -- where does your confidence come from in terms of duration of growth?

So then in the consumer space, 35 years, rhodes probably one of the brands that I've been most confident in terms of the long-term trajectory. And that went all the way back to diligence. I think we sometimes get this question which is a little perplexing to us of, hey is rhode a celebrity brand and a lot of celebrity brands have gone up and they've kind of come back down.

And we kind of scratch our heads to that because I got to tell you, I see a ton of founders. Hailey Bieber is not only -- not just the celebrity, but she's one of the most thoughtful founders I've ever met. Her level of her instincts, her -- how beautiful her aesthetic is, how involved she is on every aspect of that brand. I don't know how many rounds of submission we get into. And then her vision, one of everything really good.

So the foundation of rhode is really built on the strength of our product portfolio that's highly curated. That has numbers no one has ever seen in terms of individual product level. If you look at rhode. One of the things that attracted us to rhode was they were doing $212 million of net sales, DTC only with just 10 products in less than 3 years. We've never seen that before in our space in terms of that type of trajectory as we've taken it into Sephora, the launches in Sephora, North America, Sephora, U.K. and [ Mecca ] in Australia and New Zealand are multiples higher than anything else those retailers have ever seen. I'm talking about any brand those retailers has ever carried. So it's in a level and a category that is unlike anything else that goes beyond that.

And then the sustainability really comes from a couple of things. Number one is the strength of the fundamental products. As we take a look at the repeat rates of those products, how the brand continues to build month after month. So not only do we have the most successful launch in Sephora, but you take a look at the momentum that we've seen in Sephora as we continue, particularly under this curated product line.

The other great signal for me is every subsequent launch we do on rhode is bigger than the prior launch. So you see this momentum continue to build. And yet, for all the success that we've had on rhode, it still has a tremendous opportunity in terms of brand awareness. The unaided awareness on rhode is probably in the single digits. And we've proven on e.l.f. Cosmetics and e.l.f. skincare, our ability of building awareness. On e.l.f. Cosmetics, we've taken unaided awareness up from 13% to 45% in just a few years. So we know how to drive awareness and bring more consumers into our franchise.

So this is a brand we definitely are building for the long term. And then -- the most exciting part of it is we -- in our fiscal '26, we did $390 million of net sales in less than 20% of Sephora's doors. We're going to 19 European countries this summer, over time. If Sephora could have it, they would love the brand in every single Sephora around the world. We're very big on disciplined rollout strategy, making sure you're building the brand, making sure you're building the community as we go through.

So yes, I do -- to get a chuckle when people worry a little bit rhode. I'm like, you've got a lot more to worry about than rhode. Rhode is a pretty phenomenal brand.

Just like I'm sure there's a lot of pull for more distribution on rhode. I would assume that there's lots of on paper, lots of opportunities for that brand to go in lots of different directions into new subcategories and white space. At the same time, that heavy curation is key to the brand. How are you managing that tension?

Yes. So I give Hailey Bieber a lot of credit on that. She set out to create this brand on something -- that was one of everything really good. The only thing that we will introduce on rhode is something that she personally uses is a big believer in. And like I said, we go through dozens of submissions on each product.

So I'm not -- we have a robust product pipeline on rhode, but it follows that same philosophy. You're never going to see -- some of the brands that we sometimes get compared to, they had 100 SKUs, 150 SKUs. We don't see rhode going there. We continue to see it to be something that is -- continues to be highly curated. Yet at the same time, just I think this last week, we introduced our next slate of innovation online. You're going to start seeing that in Sephora soon. The response to that innovation has been incredible. So everything that we're doing, just given the thoughtfulness in terms of it's a very different strategy. It's not about proliferation. It's about meeting for the consumer and the quality of those products gives me a lot of confidence in terms of how we continue to drive innovation, but do in a way that's consistent with the brand ethos.

Great. Turning to the core e.l.f. brand. You mentioned that softer patch in 2018. The good news is we're in a little softer patch now. The good news is we've got the broader portfolio, as you mentioned. But as you look at what has been softer consumption on e.l.f. of late, flattish, low single digits by our observation on consumption data.

I guess what is your diagnosis of that slowdown? I think there are probably multiple facets to it. And then what are you doing about it to reignite growth as we move into '27?

Sure. As I mentioned before, our business is driven on 4 core fundamentals, team, value, innovation and marketing. And so let's go through that and maybe I won't go in the same order, but let's start with value.

Last year because of tariffs. At one point last year, we're facing as much as 170% tariffs. We took a $1 price increase across our entire portfolio, which was a 15% price increase. Now on the surface, that was a successful pricing action. We took 15% higher pricing. We only saw mid-single digits unit decline. In the last few months, we've seen a little bit higher unit decline, I think, based on the consumer sentiment that's out there that a number of companies have talked about.

And so we take a look at it and say, "Hey, look, we feel that pricing overall was the right move relative to the costs, both tariffs as well as inflation that we're facing." having said that, we also take quite seriously our responsibility of delivering superior consumer value. So we've been doing some price discovery. We had skin tint, a new item that came out last year. That was price at $18. So we just tested at $14. We sell more than a 40% lift once we did that test. In the last few weeks, we've seen as high as a 60% lift that really got us interested in saying, hey, are there some selective other products that we want to test and do some discovery to say, if we took the price down $1 on those items, what type of elasticity do we see in this consumer macro. And I think 2 important notes there. This is not a wholesale rollback across the entire price increase we took last August. It's really discovering which items which prices do we feel has some resonance that we can potentially take some selective pricing action because value has been the big driver of our business just to see in this macro, are there places that we can offer better value to the consumer.

The second thing from an innovation standpoint, as I mentioned, we have had a consistent strong track record of innovation our innovation in the spring cycle that we just launched was below our expectations. I'd say it's the first time in 8 years that we've had innovation that was below our own internal expectations. And while it was below our expectations, it's still some of the strongest innovation in the category. We already have 2 of the top 10 launches in the entire category.

If you take a look at what's the difference there? We tend to do best when there's a very clear frame of reference to prestige, the prestige inspiration. And if you look at the 2 of the top 10 launches we have so far this spring, One is our lip oil stick. It's priced at $10. The only other thing like it is a prestige item at $48 in the marketplace. Consumers got it right away, and we've seen really great results.

The second is our melting lip balms. It was an item we launched last year that we've continued to extend on again at $9 versus prestige at $24 an incredible value. There are a couple of other items that we thought would do better than they have. Like so we had a part of our soft glam franchise. We did a soft glam concealer at $5. We thought that would have incredible virality at a $5 price point. There's not another $5 concealer in the marketplace. It's had good offtake, but not nearly the level of virality we have. And so what we're doing from an innovation standpoint is reinforcing where do we have clearer frames of reference.

Now the good news is in another month, we start setting our fall innovation. We've already seeded online 4 items that are very clear frames of reference to prestige. We have a makeup brush that is the only other thing like it is a prestige item that's selling extremely well. Same with these blush and bronzer sticks. Again, very clear reference from a prestige standpoint. We take a look at our lip stains as well as our quads. Early results and all you have to do is go online and take a look at Mikayla, one of the big influencers in our space in the last 2 weeks. Just look at the reviews she's left on that product as well as a number of the other ones that are quite encouraging. The other thing that we're doing is we're leaning on our, one of our superpowers is our speed to market. And so we are known for listening to our community and delivering what they want to market.

So we've actually brought incremental innovation into this fiscal year based on the volume of what we're hearing the community wanting. And based on what our community wants, we can go from initial idea to actually having them in market within 6 months. And so really leveraging that strength we have in innovation to be able to do that as we go through.

Third, from a marketing standpoint, our marketing works best when you start seeing that virality on innovation, our ability to feed that and be able to sustain that demand and build growing franchises. And then last, in terms of team. We made some important team moves.

One was recognize the contribution of Kory Marchisotto, our CMO over the last number of years. She has a particular passion for the e.l.f. brand. so making your President e.l.f. brands, where she has a passion, particularly not only on the e.l.f. brands, but also the expansion in other categories of the e.l.f. brands as well as our international growth aspirations there, I think, plays well. And there's a great analogy there.

When I look at Nick Vlahos CEO of rhode, I look at Suzanne Pengelly, President of Naturium, really bringing that focus on e.l.f., bringing Oshiya Savur as CMO on e.l.f. brands. She is somebody we've had our eyes on for a number of years, tremendous talent from a marketing standpoint, bringing those fresh eyes into e.l.f.. And then last but not least, appointing Ekta Chopra, the Chief Technology and AI Officer. Ekta has been with us a decade led our technology initiatives, including probably one of the most successful conversions to SAP, anyone's ever seen last year. She's a real passion for AI and how we embed that across every workflow within the company.

And so those are the core actions that I feel confident in terms of -- because they go back to the fundamentals that have driven the business over a long period.

We didn't hear much about that SAP implementation, which is a good thing.

Yes, which is always a great thing.

When you talk about the frame of reference criteria for innovation relative to sort of crowd sourcing from your community, is there a good overlap there? And if there was not, what would you prioritize? Does that make sense?

Yes, there's always overlap. I think part of what we do is when we study our -- we've got such a great innovation capability that our teams are always sensing what's in the market. And the great thing for us is we're not dependent on any season of prestige innovation. If you look at some of our biggest innovations, they were prestige items that existed for a decade, 15 years that became viral over the last couple of years.

Like one of the biggest launches we ever had were our lip oils the inspiration of that had been in market for more than a decade and really took off after the pandemic as people wanted bolder looks from a lip standpoint. If I look at our camo concealers, that was a prestige item that have been highly successful for 15 years. Our ability, when I think the real secret for us is putting our e.l.f. twist on and bringing in a much better value. as we go through.

So those things have both where you can actually see the size of the prize based on what's actually sold for a very long period of time in prestige that we can bring greater accessibility to that our consumers are already responding to. And then those moments that you hit particular virality, One of the great things about being in beauty and particularly in color cosmetics, and skin care is the level of consumer engagement in these categories is off the charts relative to any other consumer category.

So this is one, I mean, I was in -- I've worked almost every consumer sector over the years. And relative to food to pet to home care, laundry, paper, I mean, a number of the other categories. This is a space where consumers are not shy of letting you know what they're most excited about and our ability to be able to respond to that. So there is often a convergence between the two as we take a look.

And the way we navigate that is our innovation pipelines go out at least 3 years, where we are -- and I would say that is the science aspect of mapping which are the biggest items in beauty or biggest sources of innovation, how are we engineering our quality and our value into those as we go through. And then giving yourself, we have another lane where we give ourselves the ability to pivot when people -- I mean we did this just even last year where we had our pipeline bronze and drops.

Our community came to us and said, "No, no, we want them now." and we were able to launch them 6 months later. So we pulled them up a full at least a year from where our original slate of launch was based on the level of volume we heard from a consumer standpoint. And so we'll continue to see us follow that approach of if we see our community particularly spike in a particular area, our ability to move around the innovation time line to be able to take advantage of the interest in that item, which is exactly what we're doing right now in FY '27 where we're bringing additional innovation.

Okay. I'll put some of this in the context of your '27 outlook because the pricing machinations that we're talking through that you're working through some of the incremental innovation as well as what's going on in the commodity cost market, inflationary pressures. Those are not explicitly embedded in the '27 outlook.

So I guess 2 questions. How are you managing through that uncertainty? And then, I guess, how would you like investors to be thinking through those same variables?

Yes. So I'll start with the second one first. If you look at our overall philosophy on guidance, our initial guidance has always been the floor. So if you look over the last 7 years, I think we've outdelivered the net sales guidance by something like 1,500 basis points adjusted EBITDA guidance is probably about the same amount.

So when we put our guidance, our initial guidance, it's something that we're incredibly confident of regardless of what we've said is embedded in or not, like we it's just our approach. And you can look over 29 quarters, our overall approach of pretty conservative. We take it one quarter at a time. and we're focused on the long term. So the other thing I would tell because I always get a little perplexed when I hear people like, hey, what's the gross margin impact of price discovery you're doing. And first, I started answering the question by saying like, well, it's not across the entire line. It's certain items. And the elasticity is a key part of what we're looking for.

But the bigger thing, which I think everyone seems to forget is we're set to receive $58.5 million of tariffs that we paid last year. And we've already started receiving some of the tariffs. So we're going to get $58.5 million that is also not in our guidance, which will more than pay for or will certainly pay for any of the activities we're doing to drive stronger unit growth. So if I think of the price discovery we have if I think of inflationary prices.

And we're not as exposed as some other companies are to oil prices. But the inflation that we may see there, if I think of the innovation and any incremental support we put behind innovation, we anticipate to use the $58.5 million. It's really a onetime thing. We had a onetime tariff piece that we paid that -- shouldn't have been paid in prior years. We get to refund this year. It gives the ability to really drive stronger unit growth. And so the way to look at that for investors is our ability to take that tariff refund and invest in our community and our consumer to drive even stronger unit growth. We feel will set us up even better for the longer term.

And so any of the noise on what price discovery doing, what level of inflation, anything else there is pales in comparison those tariffs. And it gives us a great deal of optionality as we navigate this year in terms of really being able to have that dry powder to be able to do...

Yes. It's an important point because there has been uncertainty questions as to the likelihood of receiving that. So you are receiving some and you have high confidence?

We've already received some, and we do have high confidence. I mean it was very clear. We were early in line in terms of kind of seeking it. And so now like many companies, we have no schedule. We have no certainty of kind of what cadence will it come in because I know I'll get 100 questions afterwards. So okay, well, now that you've got when are you going to get your next payments? And we don't know that. We just know that we are not only in queue, but we've actually already started.

Very good received. So very good. One key aspect of the growth story we alluded to earlier, but we really haven't talked about is international. And it's international across now multiple brands. I guess, maybe, there are a couple of markets that have been topical, the U.K. and Germany because there's been some volatility there, maybe an update on where we are in those particular markets and then just more broadly how you're thinking about and prioritizing the international opportunity, not only in '27, but over the next several years.

So stepping back, international is a massive opportunity for us. Only 20% of our business comes outside the U.S. so still, I mean, relative to our peers that have about 70% of the business outside the U.S. So we have a long way to go, primarily a U.S. company that's now starting to expand. If you look at our business, maybe I'll step back even further, start with the cosmetics category.

If you look at cosmetics overall, the #1 player in cosmetics, is L'Oreal brand that has $5 billion of global retail sales, but they do that out of 120 countries. If you look at the e.l.f. brand, we have about $2 billion of global retail sales, and we do that out of 16 countries. So it shows you the power that we have in terms of long term as we continue to expand our portfolio, what we can do that's just on e.l.f., we believe we have a massive opportunity in e.l.f. SKIN, Naturium and rhode. We already talked the rhode one, Naturium is another brands that we see a lot of opportunity. In terms of the biggest countries we're in right now, there are really 4 countries that our big countries. The U.S. Canada, the U.K. and Germany. And I would say in the U.K. and Germany, we did have some challenges last year.

In the U.K., we saw a more promotional environment -- and in Germany, we were lapping our massive launch in Rossmann in Germany the year before. The good news is coming out of Q4, we saw a major progress in both markets. the U.K. went from negative to positive trends. We continue to build week after week in the U.K. and Germany, again, has gone quite positive, particularly as we've launched into DM as overall market. And the reason why both of them have inflected positive is we now have more than 70% ACV coverage in both markets.

So we're able to put the full e.l.f. model on. It's been actually quite a while since we had any awareness advertising in either the U.K. or Germany. As soon as we've put on a little support from an awareness standpoint, we saw almost immediate results in the business in both countries. And so we feel good about the model we have, particularly as we build up ACV coverage.

At the same time, you'll continue to see us seed new markets. And you'll see us seed new markets really in 2 ways but one of our strategies is win with the winners. So I already talked about Sephora and our plans not only on rhode with Sephora, but also with Naturium, e.l.f. Cosmetics, and had two of the best launches in Sephora last year with Sephora in Mexico, Sephora in the GCC. We see further opportunity with Sephora. Sephora is certainly an opportunity for us to continue to strengthen that relationship globally over time.

Second is we've seen real tremendous progress with Amazon, TikTok Shop in the U.S., and we see there's greater global potential with those platforms as well. We're one of the fastest-growing brands or our portfolio of brands amongst the fastest growing on Amazon, TikTok Shop plays well into the strength that we have on social. So if I think of connected commerce, the strength we have in social directly translates in terms of what we're able to do there.

So one is continuing to follow areas of where we have advantage, whether it be Sephora, whether it be Amazon, TikTok Shop. And the second is a disciplined approach country by country. And it will vary by brand in terms of how we are able to do that. We do have a team in London that is responsible for the EMEA region. We have opportunities in other parts of the world, but it's the same disciplined sequencing that we've done. Even if you look within the U.S. of how we went from Target. It's probably like 5, 6 years before went to another customer in Walmart a couple of years before we went into Ulta and continue to expand from there, the same is true internationally. It's still a massive opportunity and still a tremendous amount of white space.

Great. Just a couple of minutes left. And I guess both a financial capital allocation type question, but also just a strategic question on the portfolio. We talked through e.l.f. Cosmetics, e.l.f. SKIN, we haven't talked about much about Naturium, but it's there, plus rhode. So you have lots of opportunities across those 4 core categories today.

At what point again, both financially and strategically, would a fifth brand makes sense. How -- on your rank order of importance? How much time are you thinking of spending on...

I'd say, look, the primary focus for us is realize the organic growth we have within our existing portfolio. We just a tremendous opportunity. And since we didn't talk much about Naturium. I did mention it was the fastest-growing skin care brand amongst the top 50 in the U.S. We've expanded the footprint of Naturium into Ulta Beauty into Shoppers Drug Mart Boots. Sephora in Australia and New Zealand. There's much further expansion. We just most recently took it into Walmart, have a massive opportunity there.

So I'd say the #1 focus is realize the potential of our existing portfolio. As I mentioned earlier, we have an exceptionally high bar for M&A. If we saw another Naturium and rhode, which are incredibly rare, we would acquire them. We have a very strong balance sheet as we go through and particularly given our acquisition approach, where we bringing in an entire team enhance that team and our ability to go there.

So I would say the first priority from a capital allocation is investing behind our brands, looking at strategic extensions where they make sense, second. But we also will take advantage. We have -- in this -- in the last few weeks, we purchased another $50 million of stock when we see a disconnect between the stock price and the fundamentals both with what we've delivered as well as the white space we have, we took advantage of that. So we've now -- I think we had a $0.5 billion authorization. I think we've gone through about $150 million. So we still have $350 million left in terms of capacity to continue to kind of repurchase as we see that first priority is clearly on our brands, but we will take advantage, particularly in times like this where we just -- the fundamentals the stock price doesn't reflect the fundamentals and particularly the future that we have.

So with that in mind, any closing thoughts, what should investors be most focused on as they think about investing in that in e.l.f. to get the stock price higher?

Well, I'd say two things. One is focus on the consistency of the performance over time. It's so easy to get trapped in current consumer sentiment or where things are and the core durable areas of competitive advantage we have.

And then the second thing is the white space we have ahead of us. I'm more excited today, and I've been CEO more than 12 years than I've ever been in terms of the future potential of this company, given the strength of the portfolio and how much white space we have.

Fantastic. Tarang, thank you so much. Thank you all for joining us, and enjoy the remainder of the conference.

Great. Well, good afternoon, everyone. Thanks so much for joining. My name is Anna Lizzul, and I'm a lead analyst at BofA covering household personal care and beauty. I'm thrilled today to be joined by Tarang Amin, CEO of e.l.f. Beauty; and Mandy Fields, CFO of e.l.f. Beauty. Thanks so much for joining. Happy Friday, and welcome.

Thank you.

Thanks for having us.

Well, I think this call is especially timely because e.l.f. reported earnings about 1.5 weeks ago, but it feels like ages given how much has gone on in the market. So I wanted to start off with your guidance for fiscal '27 and fiscal Q1. You're guiding to net sales up 12% to 14% for the year, with organic net sales up 4% to 5%. But fiscal Q1 organic net sales down high single digits. So we're continuing to see here in the scanner data on organic sales, some weakness for the e.l.f. brand. I was wondering if you could talk a bit about that weakness? And then farther out, what gives you confidence in the rebound in fiscal Q2 that you're expecting mid-teens percentage organic net sales growth?

I don't know how that happens in the office, having Internet issues well. Anyway, thanks for having us, Anna. On guidance, so yes, we have set out a guidance for the year at the total company level at 12% to 14%, on an organic basis is 4% to 5%. And then for Q1, we called out the high single-digit decline, primarily driven by cycling a pull-up of shipments last year. If you recall, we launched on our new ERP on July 1, and so some of our retailers did put in orders ahead of that switch over to avoid any kind of out of stocks or anything like that. And so that's really the main reason that you're going to see those high single-digit declines in from a scanner standpoint, we talked about scanner is not where we want to see it right now.

Our spring innovation got off to a bit of a slower start than we expected. And we're also cycling. If you recall last year, we launched our Melting Lip Balms early. And so we're still cycling through that until we launch our fall innovation. And so you're going to see scanner kind of bounce around from week to week. Doesn't take away from still seeing that 4% to 5% range as our outlook for the first half of the year as well. You mentioned the Q2 being up mid-teens, there's just going to be some timing. We still feel good about the 4% to 5% overall.

Okay. Great. And in terms of your guidance philosophy overall, you talked about a number of things, which are actually not included in the guidance, so tariff refunds, pricing actions, oil-related cost headwinds, does this mean that there could be potential downside risk to your outlook if you're looking at some of these actions or if they don't take hold?

Yes, we see this outlook and how we've approached our guidance historically is that we put a baseline case out there at the beginning of the year. I think if you look back over the last 7 years, we pretty much have a track record of ending in a better place than where we started the year. And so as we think about these additional things that we want to pull on like the value and the price discovery that we're doing and launching additional innovation this year. We see those as things that can further strengthen the trends that we're seeing and support that unit volume growth that we want to see. And so certainly do not expect to see further downside driven by those actions.

And recall, we also have the potential tariff refund about $58.5 million is what we paid in IEEPA tariffs last year. We see that as a potential mitigator to any of those headwinds that we called out from a cost standpoint from oil.

Okay. And so on pricing, I wanted to dive into that topic as well. You're targeting certain SKUs for pricing reductions based on consumers having to make difficult everyday choices. And you were an early mover last year in the mass beauty space to take pricing due to the tariff impact in 2025. Now how does that price gap compared to peers versus the prior increase that you took in August 2025 with these reductions? And then as you're looking at the total portfolio, what percent of the portfolio are you reducing prices on? And as we look forward, given you are lapping that price increase of $1 that you took in August, how are you planning to support driving volume growth once we hit that time frame?

So, Anna, on pricing, I would say one of the key competitive advantages of e.l.f. Beauty is our superior value proposition, and we take that responsibility of superior value very seriously. As you know, last year, in August, we were forced to take a dollar price increase with the combination of very high tariffs as well as inflationary pressures. It was about a 15% price increase. Overall, that pricing was successful from a standpoint of driving higher dollar sales. We saw units kind of in the mid-single-digit decline range.

As we've gone into the year, particularly given the state of the consumer, we saw some further unit declines. And so pricing is always an area that we take a look at, particularly in terms of reinforcing our value proposition. So we did a test where we took our skin tints from $18 to $14, and we saw almost a 40% lift even higher in more recent weeks. So that gave us an indication that perhaps there are some other items that we can take a look at to reinforce the superior value that we have. And so we're in the process right now of taking a subset of our range.

It's actually a pretty small percentage of our range, where we're also testing, do we see higher unit velocities from the -- from a price gap standpoint, I would say when we took our pricing, we're pretty much the only major player that took pricing during that time. So we were negative in terms of the price increase that we had. In the last 4 or 5 weeks, we have seen AUR in the category come up almost 9%. So we are now seeing some pricing action from a number of our competitors, which should make that gap pretty much more in line.

We still have a phenomenal value relative to the rest of mass beauty. I think our average unit retails are closer to $7 versus $10 for everyone else and well over $20 for Prestige. And so we feel good from a value standpoint in terms of what we're going to be able to do, particularly with the discovery that we're doing as we go through. We haven't disclosed what percent of the lineup, I'll just tell you it's a subset. We're not planning to take everything down. We're planning to test just like we do with the skin tints, where does it make sense as we go through.

And then in terms of lapping the price increase last year, a lot of what we're doing in terms of the actions that you've heard us talk about, both the price discovery as well as incremental innovation into this year are really aimed at driving greater unit growth and utilizing the $58.5 million of tariff refunds that we're going to be able to get to continue to drive higher unit growth.

So as Mandy said, the forecast we put out or the outlook we put out is the floor. We feel there's upside on top of that. And we'll use the same approach we've always used with just quarter-by-quarter, update that guidance based on the moment that guidance based on the momentum that we're seeing.

Sure. And as we think about the broader environment like you said consumers are stretched they're making difficult everyday choices. I guess how do you know that the relative price points were the main issue here in terms of volume growth and that cutting price was the right solution. I guess, looking at your prices, even after you took a dollar incrementally last year, you were still cheaper than other mass peers in this space. And so why is cutting price the right solution currently?

Well, we are always modeling both competitive set as well as our own items and how they're doing. And so we see some items that there may be an opportunity to have even a sharper price on. So it's as simple as that. And we've always done that in a way where we've always looked at, particularly on our innovation mix, what are we going to go out the door with, what really drives the kind of a screaming value? What we're most known for is our ability of taking Prestige quality or inspiration for prestige or community, putting our e.l.f. twist and bringing it at a great value. And we feel really good about the innovation that we have coming out in our fall innovation.

Some of that has already started to plant online. They will hit retailers in the next month or so as we go through. And many of those have that clear frame of reference to Prestige. And so this is what we normally do, which is really making sure we deliver superior value to our community, and that's actually been one of the key drivers.

And e.l.f. isn't a brand historically to take promotional pricing. It's more of a driver of volume growth for other mass peers in this space. But curious what you're seeing now on the promotional environment with competitors on pricing? And then as consumers seek the best value, where are you seeing the most traction with your brand in this more challenging consumer environment? Is there any pickup with particular retailers such as Dollar General versus the mass side where we've seen more weakness?

I would say, from an overall consumer standpoint, consumers are kind of under threat from inflation and other issues. The reality is we will continue to have a superior value proposition. As you mentioned, the difference between us and our competitors is pretty great. The discovery is we're going to do is allowing us to do even sharper pricing. And our strategy is an everyday low price. We don't do the promotional support that a number of our competitors do. I wouldn't say we've seen a pickup in promotional support necessarily. That's always been a strategy for a number of our competitors, a lot of high low, a lot of different promotions. We've been able to prove over many, many years that having a great everyday value is a better proposition. And so that's what we're really focused.

Right. And as we've seen other companies have been talking about lower income consumers being under pressure, potentially rolling back prices? How does this affect the broader e.l.f. brands? And how are you thinking about the cosmetics category more broadly from here?

Yes. I was going to say the great news about our portfolio that we've built is that if I think about the e.l.f. brand, we have consumers across income cohorts. So certainly, I want to make sure that we're watching what's happening with the lower income consumer. But if you think about e.l.f. brand, Rhode, Naturium certainly have consumers across income cohorts. And so we want to make sure that we're there for every. And certainly, some of this price discovery that we're doing will help from a value perception standpoint. But we want to make sure that we're thinking about all consumers as we go through. And the great thing is we're not just -- for the -- they're at the lower income, we do have consumers across those cohorts.

Yes. And building on that, if you take a look at the strength we have from a consumer standpoint, we're by far the #1 brand amongst Gen Z, Gen Alpha and Millennials and that strength is across all income cohorts. And so that strength, we continue to see. We continue to see excellent results on our brand health metrics, continue to kind of build awareness, continue to see that momentum. And so this is just one of the core the pillars that we look at between value, innovation and marketing, and they all 3 work together.

Right. You talked about innovation in fiscal Q1 is not contributing the same lift as it had in the past. I was wondering if there are any specific verticals where you feel the innovation fell short? And do you think this is part of the e.l.f. brand slowing down on growth? Or do you see this as potentially more temporary in nature?

No, we definitely see it more temporary in nature. We have had a consistently strong track record on innovation. If you take a look each year, we have some of the strongest launches across the entire cosmetics and skin care categories. And even this year, while innovation is lower than our expectations, we already have 2 of the top 10 launches. If I look at our lip oil sticks, they're off to an incredible start.

We continue to see great momentum on our Glow Reviver Melting Lip Balms as we go through. I'd say a couple of the ones that we were hoping for higher results, one example being our Soft Glam Concealer at $5, we thought that would be more viral than it is. And so what's reinforcing is when e.l.f. does best when there's a clear frame of reference on a Prestige equivalent or inspiration from our community.

And if you take a look, that's exactly what the lip oil stick is doing. It's priced at $10. The only other thing like it in the marketplace is a Prestige item at $48. You take a look at the Melting Lip Balms. Again, it's one of those where it's $9 relative to Prestige items well over $20, $24, $26. As the innovation coming up in the fall, we've already started planting some of that innovation we're seeing actually incredible virality already in some of the innovation that's coming in the fall. So our dual sided brush, consumers immediately got like, hey, this is $9. The only other thing like it is Prestige item at $36.

If you take a look at our Blush and Bronzer sticks, which we also just put online, they're at $7 versus a Prestige item at $34. And then our quad pallets at $12, the only other thing like in the marketplace is at $64. I think Mikayla just did review just yesterday just talking about that. So if you just look at it, I think all 3 of those items Mikayla did interview -- did reviews on, but so did a number of other influencers. So we feel really good, particularly making sure you have those items that have clearer frames of reference.

Sure. And then with that in mind, where you're looking for innovation that does have a clearer frame of reference, how should we think about the innovation that's brought forward to fiscal '27? Are these products that you think consumers are looking for in the marketplace right now? And also, how should we think about the pricing on these new products, given some of the cuts you're making across existing product lines?

So that's also one of the areas where we're advantaged is being able to look at our community, see what they're most interested in and bring into the market quickly. So we were able to accelerate some innovation into FY '27 that wasn't originally on the pipeline for FY '27, mainly based on the strength that we're seeing from a consumer standpoint. So we're not disclosing what that innovation is just yet, but what I can tell you is they happen to be items that are quite big from a consumer standpoint, like we can see kind of the size of what those look like, and we'll be offering them at an incredible value of what we're known for.

And so relative to, I'd say, it doesn't really impact or it doesn't really have anything to do with the pricing discovery that we're doing right now. That is on our core items, certain numbers of our core items where we say, is there an opportunity to drive even greater unit volume through price discovery? Innovation is always based on the relative comparison and making sure we're driving a great value as we go.

Right. So we've spent some time talking about the challenges that you've seen from both a value and innovation standpoint. But more broadly, isn't competition just getting more challenging? And what gives you the confidence here that e.l.f.'s brand hasn't just kind of reached a peak of growth or plateaued at this point?

Yes. I would say there's nothing unusual from a competitive standpoint. There's always a lot of competitive activity in our space. We've talked before, there's 1,800 cosmetics and skin care brands across these categories, but very few have been able to scale. And we happen to have 4 brands out of 14 that have got more than $200 million of retail sales. So every one of our brands is strong. Every one of them is growing. And so we feel good that way. I think the context I'd give you in terms of this question on maturity or competitive context is we shared in our earnings last time, if you look over the last few years, I think the e.l.f. Cosmetics brand has built over 900 basis points of market share. The next highest brand during that same period is a little bit over 200 basis points of market share.

Most of the other brands that we compete in, some have had pretty significant share losses. Even L'Oreal and Maybelline are kind of flattish during that multiyear period. There will be certain periods where you'll see, for example, you have a year where L'Oreal Paris is up and Maybelline is down, you have another year Maybelline is up, L'Oreal Paris is down. It's the normal noise in the category. We're way more dependent. We're less dependent on competitive activity and more dependent on the core fundamentals that have driven our business, which is value, innovation and disruptive marketing. And we feel good about the plans we've coming in all 3 of those areas.

And the last thing I'd tell you from a share standpoint because I think it's often missed is, yes, we have a 13% share nationally. And that, I think, #1 in units, #2 in dollars, a 13% share. But if you look at Target, which is our longest-standing national retail customer, we've got 21% of their category. And the only difference within Target and everyone else is they're at a 5- or 6-year head start. So as we map the trajectories by customer, we still have massive opportunities across the board in terms of share growth.

A great example being Walmart. We recently cited as the only beauty brand to be nominated for one of their excellence in experience awards across the entire chain. And that was really due to the thought leadership we had on their new beauty vision and their highest vision sets within beauty. They're anchoring their new beauty sets with e.l.f. lead position with more space. We love what we're seeing and Walmart loves what they're seeing in the results from those sets. And those sets have only rolled out and, I don't know, out of their chain of 5,000 doors. I think they only rolled out in subset. So we still have a long way to go, it's just one example of where we continue to see opportunity by every one of our retail customers. And I would put Target in that list as well. Target is long stated that they want e.l.f. to be their first $1 billion beauty brand. We're about halfway there. So we still have a long way to go even within Target relative to their internal objective.

That's very helpful. I wanted to turn to Rhode and you'll be lapping the acquisition of Rhode pretty soon in August. Could you talk about your expectations for growth for Rhode with the lapping of the Sephora retail launch given that was before you closed on the acquisition?

We feel great about Rhode. I mean it's phenomenal. Sorry, Mandy, where you going to...

No, go ahead, go ahead. I was going to say the same.

It has far exceeded everyone's expectations. Our own expectations, we have pretty aggressive expectations as part of underwriting that acquisition, but also Sephora's expectations. It is -- was the biggest launch Sephora North America for the U.K. and Mecca, in Australia and New Zealand have ever seen by multiples relative to any other launch they've ever done. And we've continued to see very strong momentum even after launch. Rhode is the #1 brand across Sephora. And even in North America, if you look at our position in North America, we're the #1 brand.

Often, that's done out of One-Bay relative to competitors have 2 or 3 different bays. So we have a long way to go even within North America. In addition to that, we did mention that we're very excited about rolling out Rhode in 19 countries with Sephora in Europe. And so that launch is coming up in the fall here. And so we feel really great about the growth trajectory that we not only achieved on Rhode, but where we have to go.

And final context I can give on Rhode is we mentioned in our fiscal year, it's at an annual rate of fiscal '26 was $390 million of net sales, which is pretty phenomenal, but that is in less than 20% of Sephora stores, globally. So this Rhode has tremendous potential, and we're really excited about the plans we have for it.

That's very helpful context. Wanted to also ask on the Sephora Rhode expansion that you mentioned in Continental Europe. I was wondering if you could talk about how many doors you'll add with that expansion? And then how large this will be compared to your current footprint?

Yes. So I don't know if we've disclosed how many doors, but I think its full rollout in the 19 countries where Sephora operates. And so like Tarang said, very excited about the fall launch and what's to come. The Rhode has exceeded expectations with every launch that they've done. And so looking forward to see how that comes together this fall.

But it's a big launch, Anna. We haven't given the store count. You can go look up the store count of Sephora in Europe, and you get a pretty good sense there. But it is a big launch and Sephora is quite excited. I mean Sephora had their way they want to put Rhode in every single Sephora around the world, but we stick to our strategy of disciplined rollout just the same way we've done e.l.f. overtime, where you have a sequential rollout, make sure that you have excellence in execution and that you continue to build out, and that includes in North America, the U.K., Australia and New Zealand as well as in Europe, and there will be additional markets after that.

Great. Looking forward to that. So when Rhode launch, it was often compared to other celebrity-focused brands. I was wondering how you now see that comparison holding up or maybe not holding up as well? And then who do you view your main -- who do you view as your main peers in this space for Rhode currently?

Well, I think that's one of the fallacies on Rhode. Yes, Hailey Bieber is a celebrity, but she's so much more. She is one of the most thoughtful founders I have ever met, and I meet a lot of founders. She has an incredible instinct, a beautiful aesthetic, real pulse on the community and products. She's absolutely meticulous when it comes to product. It's an incredibly well curated line that ties to her lifestyle the brand can continue to go. So there isn't any other brand like it. It would be wrong to try to compare it to a celebrity brand. We've already blown away any expectation of any celebrity brand we've seen to date because it's much more than that. It is a brand that absolutely resonates with the communities that we serve, and you continue to see that strength from a consumer standpoint as we go through.

And the example that I give there is continued build we see in Rhode kind of month after month even in our launch markets that we've already launched into, which shows the strength. And we still have a long way to go. I think one of the things we talked about on Rhode is it is accretive to the margin structure of the company. Because you see ability to invest more in Rhode. That's already been incorporated into the guidance that we've given to be able to continue to drive innovation, continue to shine a light on the incredible innovation that we have. And so we feel really good about continuing to drive this brand for the long term.

Great. And Rhode continues to innovate, adding more SKUs, but in a very deliberate way. I was wondering if you can talk about how Rhode's category expansions are going?

Yes. They're doing an incredible job from an innovation standpoint. As Tarang mentioned that connection to the community, Haley is very much focused on what is the community asking for as well, and she does a great job of teasing that innovation that's coming. And so you're certainly going to see more on the innovation front as we get through this summer. They always do some fun things there. In addition, the innovation that's already launched for an example, the spotwear that was launched just a month or so ago. Those items still have to make their way into retail. And so you'll start to see those show up in Sephora as well, always launching first on rhodeskin.com, but eventually making their way into retail as well, which is another opportunity.

And one of the great signs on the innovation is each subsequent wave of innovation is the biggest wave we've ever had. So it talks about the momentum of this brand and how it continues to build. Every launch we've had has been the next biggest -- or the next record holder in terms of launches, and what we see and we feel great about the pipeline. But as you mentioned, it is highly curated. This is not a brand that we believe in SKU proliferation on, it really does tie to, and the meticulousness of the product of her meticulousness in terms of the development of these products, and many rounds we go through to be able to really make sure it's something that our community absolutely will love.

Great. And you've made some inroads on the international expansions. Now with Continental Europe, I guess, and expanding into 19 additional countries, what gives you confidence that you're not expanding Rhode too quickly internationally?

I would say the team has been very thoughtful about the expansion of Rhode. Like Tarang said, Sephora would have Rhode in every single store across the world today, the team is being very thoughtful on that approach. So you saw us kind of take North America last year, we have Europe this fall, and there will be additional countries as we move forward. But being very mindful of growing the brand, being able to cycle that growth as we go into the following year, and they've done a great job with those plans.

Yes. And all you have to take a look at is each subsequent launch. If you take a look at the North American launch, obviously, that was a really successful launch. What we're able to do in the U.K. was unlike anything they've seen. Mecca was probably the best launch we've seen, to date, in terms of the activation. And so the team continues to get stronger as we go from one launch to another, and we have really big plans within Europe, and we are highly confident of our ability to execute that with excellence.

Okay. Well, staying on the international theme, could you talk a bit about your expectations for growth on the international business for the core e.l.f. brand? And how do you think about your growth in terms of the fiscal '27 guidance for core e.l.f. domestically versus internationally?

Yes. So what we've said about our international on the core e.l.f. is that it's really going to be a two-pronged approach as we move forward. One, focusing on driving the productivity that we want to see in those existing markets. So if you recall, our largest markets, Canada, U.K. and Germany, we're going to continue to focus on how do we get better in our existing markets, while selectively launching in new markets as we move forward. And again, the team has done a great job of really thinking through how do we do that most distinctly?

And so as you think about international growth on the core e.l.f., we haven't given a number on that, but we did say on the call that our trends are moving in the right direction from both the U.K. and Germany, where we had some pressure last year. We obviously opened DM in Germany that's given additional momentum to that market, which is great to see. And so I think you're going to see us as we go throughout this year, really focused on that two-pronged approach.

Great. Thinking about some of your other brands as well, you focused on expanding Naturium into Walmart, which is in the emerging brands part of the beauty section within Walmart. The growth there so far has really been phenomenal. And in terms of further expansion, where do you see the Naturium brand going next? And where do you see it sitting on the shelf longer term in skin care?

We see massive potential on Naturium. We mentioned in the call, it is the fastest growing skin care brand amongst the top 50 skin care brands. So it has incredible momentum. We've already more than doubled the business in the 3 years that we've -- since acquisition, and we continue to see big momentum. So right now, you mentioned at Walmart, we just got into the emerging brand section. We think, longer term, Naturium belongs both in body and in facial skin care. It's really the presentation that we have both at Target and Ulta Beauty, which continue to have great momentum.

And so Walmart still early days. We still have chain to do at Walmart, we're just in a subset of doors right now, and they're very pleased with the results they see. So you'll continue to see additional expansion on Naturium over time, not only in its existing footprint in the U.S., or existing customers in the U.S. with Walmart, Ulta and Target, but new additional distribution as well.

So in this past year, we really had a pretty big launch in Boots in the U.K. We've already expanded space in Boots in the U.K. We've always had a strong presence in Space NK. We took Naturium into Sephora in Australia and New Zealand as well, and you'll continue to see other markets. So we like the strategy on Naturium, where you're seeing real momentum and strength in our existing retailers and the ability to selectively expand into additional markets and retailers.

Great. So I wanted to move down the P&L a little bit, spend some time talking about margins. And in terms of COGS, you've been expanding manufacturing outside of China. So wanted to know now where are you at in terms of your manufacturing split in China versus outside of China for the e.l.f. core products? And have you made any changes to your manufacturing footprint, otherwise to Rhode and Naturium since you've made those acquisitions? Or are those manufacturing capabilities largely intact?

Yes. So we've continued to have great diversification in our supply chain. And frankly, it has less to do with tariffs and more to do with meeting the global demand we see for our brands. So as context, if you back up a few years ago, almost 99% of our production was done in China. Today, over 45% is outside of China, and that percentage will continue to increase. And it's a combination of 2 things. One is we continue to expand the portfolio. So if you look at the main production sites for Rhode are in Italy and South Korea, Naturium is mainly in the U.S. And in addition, we continue to take our leading strategic suppliers and set of operations outside of China as well.

We recently -- one of our biggest suppliers, we opened up a brand-new facility in Thailand. And the advantage of that is we're able to leverage the expertise of our strategic partners, the exact same kind of unit operations and equipment, same advantage that we have in another market. And so I feel really good about the footprint. We've continued to evolve the footprint across the entire brand portfolio. So Naturium's footprint has increased over time, Rhode's as well and certainly on e.l.f.. And so we haven't stated a percentage in terms of what percent we believe will be outside of China. China will still have an important role. We have a major advantage when it comes to cost, quality and speed, but being able to replicate that advantage in other markets is really the strategy that...

Sure. And now with Rhode and Naturium, where do you stand on manufacturing since those acquisitions?

Yes. So I'd say total manufacturing, including Rhode and Naturium is a little bit over 45% outside of China. And you're going to continue to see growth in that footprint, particularly given the growth aspirations we have behind our brands and the momentum we have behind.

And in terms of margins, Rhode is certainly margin accretive. Where do you see margins moving forward with the expansion of Rhode kind of coupled with those certain pricing reductions that you're making on the core e.l.f. brand? Are we largely ending up here in the same place as we were before given that you've got some benefit from Rhode and then some decrease in margin based on the pricing reductions you're making? And then further, how should we think about some of the near-term implications potentially with higher oil prices and tariff rates versus your potential for tariff refunds?

Yes. So Rhode -- and let me start there. Rhode, even with the investments that we've made behind the brand, continues to be accretive from an adjusted EBITDA standpoint. And even with the gross margin that we talked about for this year, as they go deeper into retail, you will see gross margin kind of shift around for Rhode, but still expect them to be accretive from an EBITDA margin standpoint.

If I take a look at the total company, we've outlooked a 20-basis-point increase in adjusted EBITDA for this fiscal year. And that is really just getting back to this cadence of incremental progress from an adjusted EBITDA standpoint. I think last year with the tariffs and all the things happening, we were not able to deliver on that. But certainly expect to for this fiscal year. And in terms of those near-term implications, when I think about the rising prices on the oil front, we see that as a transitory thing as the things evolve with war in Iran. We will have the tariff refunds as an opportunity to help offset that within the fiscal year. And so certainly don't that as a headwind that would cause us to kind of take EBITDA a step back from an EBITDA standpoint. Those refunds should help to support some of that inflationary pressure that we're seeing there in addition to helping us on the unit volume growth standpoint, as Tarang spoke to earlier.

Right. And as we think about the tariff refund, how do you plan to treat that in the income statement? Is this a onetime item that will get adjusted out? But if not, is this partially offsetting a price reduction in certain SKUs that you've talked about, price cuts remain in fiscal '28, does that continue to temper your expectations further out on earnings?

Yes. So the tariff refund we expect to help to offset some of those cost headwinds that I just talked about. And we certainly see it as a onetime thing. We're not going to adjust it out of EBITDA. Instead, we want to see what we can do from a unit growth standpoint, how can we kind of use this to drive more consumers back into the e.l.f. brand this year and continue that momentum into fiscal '28. And so you're going to see us kind of pick our spots where we want to kind of spin this refund, whether that's in value, as we've talked about some of these price discovery initiatives or tests that we're doing, some will go to fund that.

We're going to look at marketing. Is that another area that we can invest behind, marketing and our innovation, and get that messaging back out to our consumers to kind of drive that unit momentum. And so you're going to see us kind of as those tariff refunds come in, allocate that to different parts of the P&L to help drive momentum behind the e.l.f. brand.

Yes. And what I'd add there is, we've seen some of the commentary on gross margin. It's a little perplexing for us. We feel great about our gross margins. We have a great structure. I think people are getting confused on price discovery. We're talking about a subset of our life, the tariff refunds are going to more than offset that from a gross margin standpoint. The way the tariff refunds get applied is the same way tariffs got applied to, which is in the COGS. So you're going to see the refunds really apply to that line. So there's potentially a massive onetime increase in gross margins. But I'd say the overall steady state is great.

And so these investments, the higher oil, et cetera, it is nowhere near the magnitude of where the tariff refunds are, and as Mandy said, it gives us then the opportunity, back to one of your original questions of confidence of driving unit volumes. The confidence we have in driving unit volumes really comes from 3 things. One is the price discovery and the value that we're doing, two, the innovation, both the fall innovation as well as incremental innovation we're bringing in, and the third is using a portion of that tariff refund to really drive -- to double down on the themes that we see working. We've always had a great track record of when we see momentum in a particular area to go feed that momentum and really drive consumer demand behind it.

And so all 3 of those things with the tariff refunds, I think we have the opportunity in terms of how that gets funded and where we -- what we're able to drive.

Okay. So I guess given the messaging and the price cuts that you're looking to do, for how long do you expect those to last? Is this something that we should continue to expect lasting into fiscal '28 potentially? What do you look for in terms of reversing those price cuts? What would give you confidence to go back to your original pricing?

Yes. So we're going to be looking at the unit velocities that are driven. With the Halo Glow Skin Tint example, we saw a lift in units. And so we expect to see a lift in units. That's what we'll be watching. That's what we'll be tracking. And if we do see the lifts that we expect, we would plan to keep those prices at those levels on a permanent basis. And so we are going to be testing that throughout the summer. I've seen some people already start to write about what they're seeing out there. But again, a subset of SKUs allows us to do some discovery on price. And if we see the response that we expect, we would plan to keep those in place.

Got it. I think there's been the expectation for some time that you would expect some SG&A leverage on the marketing side. You're guiding to marketing spend at 23% to 25% of fiscal '27 net sales, which was -- it's broadly in line with your fiscal '27 marketing spend of 24%. So I was curious what the return is that you're now seeing on marketing side here, given you continue to spend a sizable amount of net sales on marketing?

Yes, we continue to see strong ROIs on our marketing spend, which encourages us to keep that marketing spend at those higher levels, the 23% to 25%. We like that range. To your point, at the midpoint, that's exactly what we spent in fiscal '26. And so just want to continue to pull that as a lever because when you think about the things that make up special, it's our value proposition, our innovation and our disruptive marketing engine. And so we want to make sure that we continue to fuel that because that creates that connection to community, creates those cultural moments where we are present, just like we were with Survivor just a week or so ago. And so you're going to continue to see us do really special things from a marketing standpoint.

And in terms of leverage on SG&A, what we called out this year is seeing about 20 basis points of leverage on overall SG&A, whether that comes from marketing or whether that comes from other parts of SG&A, we still are pleased with that 20 basis points, making progress from a leverage standpoint.

Great. And I think incorporated into your fiscal '27 guidance is also this expectation to thoughtfully invest in non-marketing SG&A with your team and infrastructure to continue to go after white space opportunities. What do you see here now is the most attractive white space opportunities for this investment more in the near to medium term? Would this be expanding into different verticals, such as fragrance, continued retail expansions combination of these factors? What do you see as the most prudent opportunities now?

Yes. So when we talk about investments in team and infrastructure, really that has been behind the areas that we see the most growth potential. So if you think about international as an opportunity, we've continued to build that team and want to make sure that from a retailer standpoint, we're showing up in the best way, whether that be our fixturing and digital merchandising. Those are definitely investments that you're going to continue to see us make as we support that growth that we want to see. In terms of verticals, we've done some testing, right? We did the Power Grip test with the hair gel that was very successful. We did a collaboration with H&M on the fragrance side. And so certainly taking some of those signals as opportunities to see where else could we potentially stretch the e.l.f. brand over time.

Yes. And we've seen the e.l.f. brand is highly elastic. There hasn't been a category we've tested so far that e.l.f. doesn't belong in, but it's going to be that disciplined rollout strategy we have. We still have a massive opportunity in skin care through the fastest-growing skin care brands between e.l.f. SKIN, Naturium and Rhode. So we want to make sure that we do that the right way. And then in terms of a little bit of cash priorities, our first priority is we see tremendous growth ahead. I don't know of any company that has all 5 of its brands growing at a fast pace and have all having a lot of white space. So that's our first priority.

Now having said that, we also see a disconnect right now between the stock price and the fundamentals of the business. I don't even know that many consumer companies that are putting out guidance even initial guidance at 12% to 14% net sales growth yet. We obviously see the stock weigh down given the recent trends in the e.l.f. brand. So we did take the opportunity this week to purchase another $50 million of e.l.f. stock. We have an authorization -- original authorization of $0.5 billion. I think we've now gone through about $150 million of that authorization. So we still have more authorization when we see disconnects like we're currently seeing right now.

We are -- we will use cash that we have on hand in that regard. And again, it will be a balance. Our first priority is always going to be to invest behind the growth that we see and the potential we see long term behind our brands, but we will also take advantage and we have the authorization to take advantage of when we see disconnects as we're seeing right now.

Great. And, Mandy, you mentioned you've launched into hair? Is that a signal that you're looking to other categories for growth? And how should we think about the opportunity for e.l.f. to expand into different categories like fragrance and hair?

Yes. You just heard us say, e.l.f. has permission to enter any category that our community has seen and asked for. And so that's why we like to test and learn as we go through. And I think our test with the Power Grip hair gel was very successful, sold out right away, a lot of positive sentiment there. And so I think you guys are going to just have to wait and see. I wouldn't go in Pentylene these categories and start measuring that into your models at this point. We're just -- we're testing our way into these and to potentially into some of these categories just to see the consumer response.

Yes. And I'd say, look, our laser focus right now is getting the growth up on e.l.f. Cosmetics e.l.f. SKIN, e.l.f. Brand is where we're really and in our core categories. We see a ton of potential, including continued market share gains over time, our ability to get to clear #1. That objective has not changed. We're absolutely focused on that. The actions we talked about are really focused against that in terms of value, innovation and marketing. And so that is the primary focus by far.

We will have additional categories that we can get expand into, but we'll decide the right cadence and the right way of doing those, but right now, I want to make sure everyone gets that, that's absolutely our focus, while continuing to realize, and I think right now, because of where the e.l.f. brand is we're getting to 0 credit, and I think people are somewhat blind just how phenomenal the growth on Naturium and Rhode is as we're going through and we get it. So we know what our job is, show the higher unit volumes on e.l.f. and then all of a sudden, I think people can wake up and kind of say like, my God, this is a great company.

And again, I've got that perspective of the last time the e.l.f. Brand went through a slow period was 2018. There are a number of people probably on your call today that wish they got into the stock in 2018. And you've seen kind of that strategy and that focus on value, innovation and marketing has been consistent for 7 consecutive years or 29 consecutive quarters. And so we know what drives this business. It doesn't have anything to do with the noise of the external environment, doesn't have anything to do with competition, it has to do with our ability to execute what we know what we're capable of, and that's what we're going to be focused on.

Helpful. And a few last questions here, but I wanted to touch on the broader portfolio of brands, as you mentioned, Rhode, Naturium. You've done some portfolio reshaping with the recent transfer of the Keys Soulcare brand back to its founder, Alicia Keys. Can you talk about your decision-making process on this?

Sure. So I'd say it's twofold. One is Alicia has a tremendous vision for Keys Soulcare. And this allows her to be able to follow that vision, and it allows us to focus on the 5 growth brands that we have that have significantly more scale and have incredible white space ahead of us. So it's a normal part of any strategy process as we go through. You're always looking at your portfolio and saying these are the 5 brands that we really see tremendous potential in and it allows, at the same time, supporting Alicia, to be able to help realize her vision on Keys Soulcare. She has a very broad vision for that brand. And so it allows that and allows us to really realize potential we have in our existing portfolio.

Great. And now that you're approaching the 1-year anniversary of the Rhode acquisition, how are you viewing the M&A environment? Looking back, Rhode was a transformative acquisition because it expanded e.l.f.'s parent company into Prestige Beauty for the first time. Would you consider a larger acquisition in the near term, perhaps something more transformative in nature?

No. I think our clear focus right now is -- I'd say, no, from a transformative acquisition or really large acquisition standpoint. Right now, the focus is really getting unit share, unit growth up on e.l.f., the main brand, realizing potential, leave us so much white space on the e.l.f. Brand. I think people are missing that right now in terms of -- just do the math, 13% share to 21% share is what we're focused on from a share objective long term on elf Color. e.l.f. SKIN is still very much in the early days. We went from the #25 position at the #11 position still have a long way to go in terms of the footprint of that brand. Naturium, as I mentioned, is the fastest-growing skin care brand in the top 50 right now, and Rhode is just a phenomenal brand that has incredible upside. So that's what we're primarily focused on.

Now we have a strong balance sheet. If we saw another Naturium or Rhode, we would acquire them, but they're it's a pretty high bar that we have, not only a pretty high bar, an exceptionally high bar. It has to meet our vision, the financial criteria that we have in terms of strong growth, not only in the top line, but also a strong margin profile. Team and culture and being a fellow disruptor, that leads out the vast majority of potential targets. And so I'd say first focus is realize the organic growth and the strength that we have, execute with excellence what we're capable of, and then we're always looking and seeing different things. And again, if the criteria for us or the bar that would be set is, do we see another Naturium, do we see another Rhode, and quite frankly, they're very few, if none of those.

Great. Well, that's very helpful. I think with that, we're just about out of time, but thank you so much, Tarang and Mandy for joining us. We really appreciate your time today.

Thank you for having us.

Thanks for having us.

Thanks So much. Have a great weekend.

Bye.

Thank you for joining us today to discuss e.l.f Beauty's Fourth Quarter and Full Year Fiscal 2016 Results. I'm KC Katten, 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.

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, KC, and good afternoon, everyone. I'm proud of the e.l.f Beauty team for delivering our seventh consecutive year of industry-leading results. In fiscal '26, we grew net sales 25% and adjusted EBITDA 13%. Q4 marked our 29th consecutive quarter of net sales growth. We're one of only 6 public consumer companies out of 546 that has grown for 29 straight quarters and averaged at least 20% sales growth per quarter.

We have an incredibly strong portfolio of brands. Out of approximately 1,800 cosmetics and skin care brands tracked by Nielsen, only 14 has surpassed $200 million in retail sales. We have 4 brands to surpass this threshold. Each built on the same winning combination, our value proposition, powerhouse innovation and disruptive marketing engine. Our fiscal '16 results by band reflect the strength of our portfolio. Starting with e.l.f cosmetics. e.l.f Cosmetics delivered approximately $1.8 billion in global retail sales this year, and we continue to drive industry-leading market share gains.

In fiscal '26, we increased our U.S. market share by 115 basis points the largest share gain among the nearly 1,000 cosmetics brands tracked by Nielsen. This marked our 29th consecutive quarter of market share gains, a 920 basis point increase over these past 7 years. For perspective, the next highest brand grew 240 basis points during the same period.

As great as our share gains have been, we still see significant runway for growth. Nationally, e.l.f has 13% share in mass color cosmetics. At Target, our longest-standing national retail customer, we have 21% share. Our aim is to bring other retailers to this level of performance over time. Looking at e.l.f skin, e.l.f skin delivered approximately $200 million in global retail sales this year. We're applying the simulation strategy of e.l.f skin that fueled elfcosmetics, taking inspiration from our community and the best products in prestige and bringing the market an extraordinary value with our signature of e.l.f twist.

The strategy is working. Over the last 5 years, e.l.f. skin has listed on the #25 masking care brand in the U.S. to the #11 brand. We believe there's plenty of opportunity to further share gains as e.l.f skin today holds about a 2% share of the mass skin category as compared to the #1 brand holding a 13% share.

Turning to Natrium. The clinically effective biocompatible skin care brand we acquired almost 3 years ago. Natrium delivered nearly $250 million in global retail sales this year, double its preacquisition levels. In Q4, Natrium was the fastest-growing among the top 50 skin care brands, and we see plenty of white space ahead.

Moving to Rod, the high-growth BD brand founded by Haley Beaver, which we acquired last Audi continues to exceed our expectations. On an annualized basis in fiscal '26, Rhode delivered over $500 million in global retail sales and approximately $390 million in net sales, growing net sales over 80% year-over-year.

In fiscal '26, Rhode achieved the #1 beauty brand ranking in Sephora North America and executed record-breaking launches with Sephora in the U.K. and MECCA in Australia and New Zealand. With Rhodeing less than 20% of Sephora's global stores, we see tremendous opportunity in the coming years. Our acquisitions of Rhode and Naturium have meaningfully diversified our business across brands, categories and supply chain.

Over the past 3 years, we see non-e.l.f brand sales increase from 0% to 30% of our global consumption. Skin care increased from 9% to 23% of our global consumption and manufacturing outside of China increased from 1% to over 45% of our production. As we look to our results in fiscal '27 to date, we're continuing to see strength in Rhode and Naturium with slower-than-expected growth on the e.l.f. brand.

E.l.f. brands global consumption has moderated from high single digits in fiscal '26 to low single digits in the last 12 weeks. Our spring 2026 innovation is off to a slower start than we expected. And as a result, we're not seeing the lift across our cores that spring innovation has historically delivered. We're not satisfied with these results and are taking action to further strengthen e.l.f. brand growth across 4 key areas: value, innovation, international and leadership.

First, value, since our founding over 20 years ago, we have democratized access to the best of view by delivering exceptional value for our consumers. In August 2025, we took a dollar price increase across all e.l.f. brand SKUs in response to several factors, including tariffs and inflation. As we look at the state of the consumer today, we have recently seen a more pronounced icon in units. As a result, we are keenly focused on how to deliver a better value and improve unit velocity.

To that end, we recently reduced the price of e.l.f's Halo growth skin tent from $18 to $14. Initial test results show a 38% lift on Amazon and a 36% lift across all retailers, including a triple-digit sales lift on TikTok shop. Given these results, we're exploring other pricing opportunities to deliver value to our community.

Second, innovation. Our community-led innovation model is one of our key competitive advantages. We listen to our community and quickly translate their request into premium quality products at extraordinary prices. We have fast-tracked innovation that was not part of our original fiscal '27 plans and aim to have these in market before the holidays.

Third, international. In fiscal '26, our international net sales grew 38% behind the strength of our expanding brand portfolio. In fiscal '26, we launched in 8 international retail customers across 14 countries. For the year ahead, we're focused on growing share of the e.l.f. brand in our largest markets, the U.K., Canada and Germany by activating our marketing efforts. We've already started to see green shoots in the U.K. and Germany as we exited Q4.

In addition, we will continue to selectively see the e.l.f. brand in new markets. Fourth, leadership. We recently announced key leadership changes to sharpen focus on the e.l.f. brands and accelerate our next phase of growth. Cory Marchisotto has been appointed to President of e.l.f. brands, a newly created role that will leverage Cory's ability to lead teams, scale brands and drive cultural relevance.

Corey will focus on expanding the e.l.f's brand across categories and geographies. We're excited to welcome Oshiya Savur as Chief Marketing Officer, e.l.f brands. Oshiya brings a combination of global perspective omnichannel expertise and a proven ability to build brands and drive growth across both mass and prestige.

Ekta Chopra was appointed into a newly created role of Chief Technology and AI Officer. Ekta has been instrumental in the digital transformation we've seen over the last 10 years, including most recently, spearheading our successful ERP upgrade to SAP. Her new role reflects how we see the future. Technology and AI as core drivers of transformation and growth across every part of the business.

Finally, we recently made the decision to transfer the key Solar brand to Alicia Keys. Alicia has a genuine passion and a clear vision for this brand. This decision also allows our team to better focus on our 5 brands, all of which grew in fiscal '26. We remain bullish on our overall portfolio and the white space opportunity we see across our brands, categories and geographies.

Starting with brands. We're leaning into our disruptive marketing to fuel brand awareness across our portfolio and deepen the connection we have with our community. Our marketing initiatives have successfully expanded e.l.f.'s unaided awareness from 13% in 2020 to 45% in 2025 and have supported the strength of our market share gains year after year.

e.l.f. today is the most purchased brand among Gen Z, Gen alpha and millennials, and we continue to pick up additional households. We believe we have significant opportunity to build awareness and household penetration with Rhode and Naturium. We have a unique ability to engage our community, combining experiential moments and product innovation to drive cultural impact. e.l.f. Cosmetics and Rod took over the 2026 Coachella Festival.

Coachella is one of the most influential cultural events for Gen Z and millennials, serving the launchpad for trends across beauty, fashion and social media and creating a content pipeline far beyond the real-time event. e.l.f. was the first beauty brand to activate across all 3 weekends of Coachella and Stagecoach, a companion country music festival, creating an immersive brand experience. Rhode drove momentum at Coachella, connecting headline talent Justin Bieber with the limited Rhode with the Biber's collaboration drop, amplifying impact with its unique world activation.

E.l.f. Beauty was a clear leader on social conversation at Coachella. Looking at categories. The skin care category remains a core area of focus behind Rhode, Naturium and e.l.f's SKIN. Three of the fastest-growing skin care brands. Rhode's recent product launches in skin care, the Capfin reset mask and peptide lip boots underscore the team's ability to consistently translate focused product innovation into outsized consumer demand.

Both launches followed Rhode's proven playbook, tightly edited product drops, strong ingredient-led positioning and a highly coordinated digital rollout. The combination translated into Rhode's biggest skin care launch day ever on its CTC site. We're seeing strong early reads as these new products roll out into retail with Sephora and MECCA. We're tuning into the community signals that e.l.f. is elastic beyond the cosmetics and skin care categories.

Following our first fragrance partnership with H&M in January, we took e.l.f's Power Group to the hair care category for the first time in March, launching a limited edition power of styling collection.

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The collection sold out in 4 hours, generating 95% positive consumer sentiment and the bundle attracting 65% new to e.l.f. consumers.

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And finally, geographies. Looking across our brand portfolio, we're in the early days of international expansion. For context, International drives approximately 20% of our net sales as compared to legacy peers having over 70% of their sales outside the U.S. There's significant pent-up global appetite for our brands. brand social followers are outside the U.S. and 74% Rhodes followers are outside the U.S. As we look to new markets, Rhodes launched in Australia and New Zealand with MECCA is another record-breaking milestone. It was MECCA's biggest launch in history.

This September, we're excited to further expand Rhode's global presence, launching the Sephora in Europe across 19 countries. In summary, fiscal 2026 marked our seventh consecutive year of consistent category-leading growth, a track record that reflects the strength of our team, strategy and portfolio of brands. We're taking targeted actions to strengthen our core e.l.f. brand and remain confident in the growth potential of our portfolio.

I'll now turn the call over to Mandy to talk more about our fourth quarter results and our initial outlook for fiscal '27.

Thank you, Tarang. Q4 net sales grew 35% year-over-year. The acquisition of Rhode contributed $113 million or approximately 34 percentage points to our Q4 net sales growth. This better-than-expected performance was supported by strong retail demand and a record-breaking launch with MECCA in Australia and New Zealand.

Looking to organic sales, excluding Rhode, our Q4 net sales were up approximately 1% year-over-year within the range we provided in February. Looking to our geographic regions. U.S. net sales grew 26% in Q4, while International net sales grew 75%. Pricing and product mix added approximately 40 points to net sales growth in Q4 and while unit volumes were down approximately 5 points.

Q4 gross margin of 73% was up approximately 140 basis points compared to prior year. The year-over-year increase was largely driven by benefits from pricing, partially offset by higher tariffs. On an adjusted basis, SG&A as a percentage of net sales was 67% in Q4 and as compared to 52% in Q4 last year. The primary driver was higher marketing and digital spend, along with continued investments in team and infrastructure.

Marketing and digital investment for the quarter was 31% of net sales, in line with our expectations and as compared to 23% in Q4 last year. We ended the full year with marketing and digital investment at 24% of net sales, in line with the 24% to 26% range we outlooked. Q4 adjusted EBITDA was $59 million as compared to $81 million in Q4 last year.

Adjusted net income was $19 million or $0.32 per diluted share compared to $45 million or $0.78 per diluted share a year ago. The decrease across profitability metrics was primarily driven by higher investment in marketing and digital spend, team and infrastructure. Now let's turn to our full year results. In fiscal '26, we grew net sales 25% and adjusted EBITDA by 13%. We also delivered 20% adjusted EBITDA margins.

Our result speaks to the underlying strength of our business despite the meaningful tariff pressure we faced this past year. In fiscal '26, we have navigated an average share rate of approximately 55% and more than double the 25% rate we based just a year ago. 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 year with $290 million of cash on hand compared to a cash balance of $149 million a year ago. During the year, we repurchased approximately $50 million of our outstanding common stock, given the disconnect we see between LPD's market valuation and the strength of our business fundamentals. At fiscal year-end, approximately $400 million remained available for repurchase under our previously authorized $500 million repurchase program.

Our liquidity position remains strong with less than 2x net debt to adjusted EBITDA. We expect our cash priorities for the year ahead to support the growth of our brands, technology investment, including AI and automation as well as investment in infrastructure to ensure our brands show up their very best and our retailers across the globe. Now let's turn to our initial outlook for fiscal '27.

For the full year, we expect net sales growth of approximately 12% to 14%, and adjusted EBITDA between $379 million to $385 million, adjusted net income between $198 million to $201 million and adjusted EPS of $3.27 to $3.32 per diluted share. We expect our fiscal '27 adjusted x rate to be approximately 25% to 26% and a fully diluted average share count of approximately 60.5 million shares.

Let me provide you with additional color on our planning assumptions for fiscal '27. Starting with the top line. For the full year, we expect net sales growth of 12% to 14% year-over-year. We expect the annualization of the Rhode acquisition to contribute approximately 9 percentage points to full year net sales growth. With Rhode adding approximately $140 million in net sales in the first 4 months of our fiscal year.

We expect organic net sales in fiscal '26 to be up approximately 4% to 5% year-over-year. This includes Rhode contributing to organic net sales growth starting in August. Looking to the first half. We also expect organic net sales within our 4% to 5% range with variation on a quarterly basis. In Q1, we expect organic net sales down high single digits as we lap a busy shipping period at the end of Q1 last year as we prepared for our ERP cutover in Q2.

We expect organic net sales growth to rebound strongly in Q2 in the mid-teens range as we annualize the acquisition of Rhode and lap our decision to temporarily stop shipments in Q2 last year on orders that did not reflect our price increase. Now turning to gross margin. In fiscal '27, we expect our gross margin to be approximately flat year-over-year. We expect gross margin benefits from lower tariff costs and price increases particularly in the first half of our fiscal year to be offset by mix as Rhode continues to transition further into retail.

From a tariff standpoint, our outlook assumes tariff rates remain at the 35% level we're facing today. As we consider the conflict in the Middle East, we are starting to see some inflationary pressure on commodities and transportation costs, like many other companies have spoken about. Assuming that oil prices remain around $100 per barrel, on average, we estimate we could face $15 million to $20 million of incremental cost headwinds in fiscal '27.

In addition to cost savings initiatives as a potential offset to these headwinds, we're also pursuing a refund on the EPA tariffs we paid last year, which stand at approximately $58.5 million. Our outlook does not factor in the impact of oil prices or tariff refunds given the situation remains fluid. From an expense standpoint, we expect to deliver leverage in adjusted SG&A in fiscal '27.

We expect marketing and digital spend at approximately 23% to 25% of net sales and plan to thoughtfully invest in our team and infrastructure with a non-marketing SG&A to go after the white space opportunity ahead of us. From a profitability perspective, our full year fiscal '27 outlook implies adjusted EBITDA growth of approximately 13% to 15% versus prior year and adjusted EBITDA margins of approximately 21% up about 20 basis points year-over-year.

From a cadence perspective, we expect high teens adjusted EBITDA margins in the first half with gross margin improvement, offset by the timing of SG&A spend. In summary, Q4 marked our 29th consecutive quarter of net sales growth, capping a year of strong execution across our brand portfolio. The fundamentals that have driven our results over the last 7 years remain intact. Our value proposition, powerhouse innovation and disruptive marketing engine. We believe these are durable competitive advantages that position us well to unlock the white space we see on the Rhode ahead.

With that, operator, you may open the call to questions.

[Operator Instructions] The first question comes from Sydney Wagner with Jefferies.

Just wondering if you can talk a little bit more about maybe what missed on the spring innovation and kind of the steps that you're taking to make sure that the fall innovation pipeline performs better. Also curious maybe what you're seeing on the you side in terms of newness that excites you the most? And then maybe just comment a little bit more on the adjacent category opportunity.

Sydney, this is Tarang. So I'd say, first of all, innovation. Innovation is still strong relative to the category. In fact, in spring, we already have 2 of the top 10 innovation lunches so far this year. Our lip oil sticks are off to a great start, priced at $10 relative to the only other item like it is a prestige item at $48, also see continued strength in our melting, lip balms at $9 versus Prestige at $24. So this is really relative to our own expectations in terms of the offtake that we're expecting and what that does to our overall core.

We talked on the call 2 specific actions that we're doing regarding innovation. First of all, we have our fall innovation going out the door in the next month. And so that all innovation we're feeling particularly good about. And in addition, we're known for our ability to take signals from our community, put our elf-twist on quickly bringing to market. So we're going to be bringing additional innovation that we had previously not planned for FY '27 into this fiscal year.

So overall, I'd say we feel good about innovation going forward with the plans that we have, both in fall innovation as well as incremental innovation we're bringing Second, on the prestige side, I would say our model is not dependent on any given season of Prestige. We have seen some softness in prestige in the spring season. from an innovation standpoint. If you take a look at some of our base launches ever, they took inspiration from prestige items they've been around for at least a decade.

If I go back to our lip oils, our lip oils were fashioned out for a prestige item that's been in the market for about a decade that gotten by over the last couple of years. If you look at our Concealer franchise, our Camo Concealer franchise that ended up taking inspiration from items been around or France that's been around for over 15 years. So we have a bRhode array of inspiration from a prestige standpoint that excites us. In fact, some of the incremental innovation we're bringing into this year do have very clear frames of reference with prestige items that are doing quite well in addition to going with our consumer.

And then finally, on adjacencies. As we talked, we did a collaboration with H&M in January in the fragrance category that was very well received. What we just did with Power Grip in March taking into hair care also at good signals. But I'll tell you is our brands across our portfolio are highly elastic. We get consumer demands across multiple categories. But we're going to use the same disciplined rollout strategy across our brands.

We have such a big opportunity in terms of color cosmetics as well as skin care. We now have 3 of the fastest-growing skin care brands, and that will be our first focus while we selectively look at additional categories going forward.

The next question comes from Olivia Tong with Raymond James. .

I was wondering if you could provide some perspective on the fiscal '27 outlook, particularly on Rhode particularly embedded growth grow a bit below where it was this year despite having only rolled out to 50% of support doors. So could you give a little bit more color behind that, what you're seeing so far with the brand, particularly in Q1 more than to happen more than half in the books at this point, what you see in terms of new markets. And then similarly on the core e.l.f. brand, to talk a little bit about the -- when what you're hearing with respect to the pull forward of innovation and a different color response to that?

And then just following up on the tariffs, I think you said that you're not assuming any tariff refund, but the rates have obviously changed. So to the extent that, that change has gone through, what are you -- what are you factoring in on the gross margin line?

Thanks for the question. I'm going to go ahead and take the first one, on the FY '27 outlook and what we've assumed for Rhode. So as we talked on the call, we're very excited about what we're seeing on the Rhode. We talked about $500 million in global retail sales on the brand and are various side of what you expect in fiscal '27. So what we've baked in is about 9 points from now through August, really until it turns into organic sales.

And then it becomes a part of our organic sales growth as we move forward. As you heard that we are launching in the EU with Rhode across 19 countries. Very excited about that, but also want to take that a quarter at a time as we go through. And so excited for what we have built in on Rhode, but I believe there could be more time on that brand, just given the momentum behind it.

And then on the second question regarding innovation. We're hearing real excitement from our retail partners on our innovation, both the fall innovation we have planned as well as the incremental innovation. Again, all of them have been anchored on what consumers are asking us for or the relevant frame of reference from a prestige standpoint. So there's a lot of excitement as we're taking a look at our innovation coming up, both in the fall as well as incremental we'll have before the holidays.

And then your last question, well, tariff refunds are not part of our outlook. We absolutely expect refunds from tariffs. I think those about $58.5 million that we're expecting. And our plan on those onetime tariff refunds is really to go back and invest in value and accelerating unit growth. Those are the 2 areas we're particularly focused on, and we feel really good between the innovation coming as well as the plans we have on both value and what we can do against units to be able to continue to accelerate the business.

And maybe just to add, Olivia was on the gross margin impact of tariffs this year. So last year, on average, we were paying about a 55% tariff we've assumed in our outlook is a 35% tariff for this year. That's the rate that we're currently at, and we'll just continue to watch that as we go throughout the year.

Next question comes from Dara Mohsenian with Morgan Stanley.

So it sounds like it's still early days here on the potential price adjustments in the portfolio, but can you just give us a sense for what range of the business, what percent of mix you might be considering price adjustments are and how deep the range of the price adjustments may be in those areas? And then second, if we could just focus on the base brand value share has come under some pressure in the U.S. Do you think that's just the innovation that you mentioned? Or are there other factors there such as more crowded marketplace, et cetera? And just obviously, you mentioned a number of focus points going forward in driving improvement. What do you think is most important in revitalizing dollar share for the e.l.f brand?

Dara, we talked on the call, we've already started looking at various price adjustments, the experiment we did with a Halo growth skin tense taking it from $18 to $14. We saw almost a 40% unit lift. We're looking at other families. We haven't disclosed which families we're looking out. But over the next few weeks, you'll see us do some pricing actions on various families against again, after driving greater unit growth on those families as we take a look.

But our overall pricing strategy remains consistent everyday great value. We take quite seriously our ability to deliver a superior consumer value to consumers. And so you'll see us take that targeted approach across our portfolio. And then in terms of the most recent kind of value share pressure you're seeing. I think you've seen really a couple of different factors.

One, screen invasion was below our expectations, so we didn't see the same level of Halo that we typically see on business. In addition, if you recall, last year, we moved up 1 of our big launches our melting lip balms each of these periods. So you're basically lapping a period that have very strong innovation without the commentary innovation. That fall innovation for us will go out in another month to be another month or so before you start seeing us innovation with innovation along those fronts.

And then what we're most excited about, I would say what we're most excited about is the consistent set of what's driven our business over time. So number 1 is value. I already talked about the actions we've done on the value equation. Number 2 is innovation, talk the actions we're doing from an innovation standpoint to bring in even more innovation.

And the third is our disruptive marketing engine, which we see work hand-in-hand with book value. and innovation. And so you you'd expect those 3 drivers to continue to propel our business, not only on health, but across the portfolio. I think 1 of the things that's been missing recently has been the strength of the portfolio overall.

Every 1 of our brands grew in fiscal '26. Naturium and Rhode in particular, have very strong growth. And we continue to fuel a big part of Naturium's growth is we put for the first time awareness building advertising under Naturium or acceleration in that business.

As I mentioned in the prepared remarks, Natrium is the fastest-growing brand amongst the top 50 skin care brands and Rhode is just phenomenally so much more potential, particularly with our expansion coming up with for in Europe.

The next question comes from Andrea Teixeira of JPMorgan.

I appreciate the color on the $140 million in sales that you expect for Rhode contribution in the 4 months. So and then on the high single-digit organic sales decline for the first quarter. So just to think about the cadence of the rest of the year. So assuming at the midpoint, you're adding about $214 million in sales. So out of that $140 million is Rhode itself for the first 4 months.

So embedded in that guidance, how you're thinking about organic as we go through the year, organic organic e.l.f, right? Organic, obviously, you gave guidance of organic quarter 5 positive. So if you take out the first quarter how we should be thinking of the sales -- the pricing repositioning and how we should be thinking the case after the first quarter, second quarter, the ERP impacts through the year?

Andrea, I'll take that question. So on an organic basis, we talked about 4% to 5% for the year. Q1, we called it down high single digits because of the SAP kind of that we had and the base that we're cycling through. For Q2, we talked about seeing organic sales growth in the mid-teens. As a reminder, we are going to be cycling, when we had certain customers we weren't shipping to, and so we'll have that -- that we're cycling through in Q2, plus we have the addition of Rhode being added to our organic growth in Q2 as well.

So that -- as we think about the first half, we really still see the first half around that 4% to 5%, same as we see for the year. And in terms of the pricing repositioning that you spoke to, the initiatives that Tarang mentioned on the value, the additional innovations, those actually are not yet baked into our outlook. We want to see how things progress before we add those into our numbers.

The next question comes from Anna Lizzul with Bank of America.

I wanted to go back the pricing discussion. And I was wondering if you could call out any channels that were particularly better or worse than others in fiscal Q1 so far? I know you mentioned the pricing improvement on Amazon providing a login sales which outperformed some of the other retailers. But overall, it sounds like this was pretty focused on the color cosmetics side. Just wondering if you could also comment on the innovation that you've seen from Naturium and on skin care and how that's performing versus color cosmetics.

Anna, so I'd say on the overall pricing discussion, we haven't seen big changes in our main retail customers channel by channel. We have been seeing and we have seen this for a while now outsized growth in our digital channels. So we take a look at the strength that we've had at Amazon, that's been ongoing for quite some time. We're also 1 of the leaders in connected commerce. If you take a look at the strength we have in TikTok shop. In fact, the pricing action I talked about on our Halo glow skin tent, we actually started on TikTok shop and got incredible consumer response.

And part of the reason why using strategies, we've seen a lift across all of our retailers when we do that and bring that strength that we have in social and not be able to apply it to connect e-commerce as we're going through. Then from the balance of innovation, we have a very strong innovation. Naturium has had a good cycle of innovation. It's been very received. I talked about every -- it seems like every launch we do on Rhode is the biggest launch we've ever done as we're going through.

So we're seeing good results on innovation across Naturium, Rhode well people as we go forward. So we feel good about innovation for the rest of the year.

The next question comes from Steve Powers with Deutsche Bank.

Okay. So Tarang. I guess the first question, even though I'm a little confused because I know that this is based on manager said it's not guidance, but given what you're contemplating in terms of pricing and innovation, how would you be thinking about what -- when you would start to see those interventions take shape in consumption? And I guess, is there a way to think about what you have baked into guidance in terms of the consumption, assumptions for the year on core versus what you're hoping to achieve, assuming success on pricing and innovation.

That's number one. And then number two, just a quick cleanup. On the IEEPA tariffs, if those refunds do come through, -- would that be a P&L item? Or is that just a cash balance sheet item?

So I'll take the first one. I would say the way we're thinking about focused interventions on pricing and innovation if those would be in addition to the plan. The current assumptions we have that are baked into our outlook is that we continue to see e.l.f consumption around the rates that we've seen the last 12 weeks or so. So they definitely would be upside.

And in terms of the timing of when you would expect to see them to start the pricing actions in the next few weeks here, -- so I would say it takes a few weeks to see them really take hold. So I think in the next couple of months, you start to see kind of the impact, particularly on units with some of the pricing moves that we're going to make innovation, as I mentioned, about a month from now, our fall innovation comes out and then the incremental innovation that we have slated, we slated to get in before the holidays.

So kind of think of it in our Q2, Q3 start seeing the impacts of a couple of those interventions, but they would be in addition to the base outlook that we've provided, which is similar to the approach we've taken in prior years where we start with the baseline outlook and adjust that as each quarter comes in as we see the result.

And then on the IEEPA tariffs, it would be a P&L impact. So the way that we're approaching that is as these refunds come through, would flow through a portion through cost of goods for any inventory that has been sold through that carried the value per tariffs. Anything remaining in inventory would go back into inventory and flow through as we sell through those items.

The next question comes from Peter Grom with UBS.

Great. So 2 questions. One, just maybe more housekeeping. The organic sales in the quarter 1% -- is there way to break out what you saw in the U.S. versus internationally? I think it's the 80/20 rule for Rhode for U.S. versus international hole through this quarter. We've seen international did much better. So I just wanted to quantify that. And then I guess, just on the organic sales outlook. It sounds like you're anticipating relatively -- obviously a lot of movement quarter-to-quarter, but 4% to 5% first half versus second half, pretty similar.

I'm curious why the second half wouldn't be stronger just because Rhode move into organic sales growth, and I would imagine the growth rate there is much stronger versus the base business?

All right, Peter. Maybe let me start with the second question on the organic outlook of 4% to 5%. Again, this is our first guidance of the year, so we want to make sure we're taking a balanced approach. We feel great about the opportunity that Rhode presents as we go through with the big EU launch slated for this fall, again, I want to see how that goes fully start to make any additional upside in there, but like I said earlier, the momentum that we're seeing behind Rhode is quite strong.

And so there could be some further opportunity there. And then on the organic of 1% in the quarter. Look, we talked on the call about the U.S. and international both showing strong growth overall as a company. We really haven't broken out organic piece between U.S. and international, just focus more on the 75% growth that we saw in the quarter on international, which was quite strong.

The next question comes from Ana Andreeva with Piper Sandler.

Tarang, just to kind of a philosophical one. on testing the lower prices and highlighting value. What gives you guys confidence that it's about the price and not perhaps relative maturity of the brand in some of the categories you play in, or a lack of that compelling innovation, which you mentioned footprint a couple of times. And can you talk about the margin impact from that? I think, Mandy, you said it's not contemplated in the guide. So are you thinking that would be offset by the refund? And then we had a follow-up as well.

So I would say the reason why we have confidence on pricing is what we saw with the pricing action. From an external standpoint, the pricing action was successful. Obviously, we had 55% tariffs even higher than that at the time we made the pricing move plus inflationary pressures that cause us to take a dollar price increase. Overall, as everyone is seeing, our dollars increased with that, but our units fell off. So we saw a pretty big falloff on unit from where before we took pricing to after we took pricing.

And then as we started doing some of these tests, we've seen really strong unit recovery on -- for example, the skin kids at $18 to $14, a 40% lift almost right away and across all customers that we tested that in gives us confidence. Again, we're test and learn brands. So we will test our way into each are the right families to be able to make that action on, but we're known for our phenomenal value and value is always a place we go to first.

And then second, pricing relative to maturity, we still see tremendous white space for the e.l.f brand even in the U.S., our home market. And we talked our national shares 13% target. Our share is 21%. And the only difference target else is at a 5- or 6-year head start. As we look across our customer base, we recently were I think the only beauty company that was nominated for Walmart's excellence and experience award that for the work that we had done on our highest vision sets in their overall new beauty concept, which we're very excited about.

In that beauty concept, e.l.f. anchors the entire department with increased space, more points of distribution love what we're seeing coming off of that -- we've rolled out the first phase of those highest vision sets. And over the coming years, we expect to roll out more on the highest vision test. We see a massive opportunity with Walmart. Same is also we recently expanded space in Alta. It takes us a couple of cycles to optimize that space, but we see additional opportunity there. But really across every 1 of our customers, our objective is how do we take that 13% share we have nationally actually a little bit less than 13% on balance of customers and bring it up closer to the target range of 21%.

So even in our most mature category in our most mature market, we still see a tremendous amount of white space. You then add on the opportunity we have in skin care and international, we just see a lot of white space in e.l.f.

And in terms of the margin impact, Ana, yes, we would plan to use any IEEPA refund to help offset some of those investments that we want to make behind value as we go throughout the year.

I would say value as well as really taking a look at how we're accelerating units. Our focus is on units and pricing is just 1 lever. There's obviously a significant amount of one-time tariffs coming back that we really would look to invest against the consumer and the thing that we work with the consumer. .

The next question comes from Susan Anderson with Canaccord Genuity.

Alec Legg for Susan. Just a bRhodeer question. How should we think about the competitive landscape for the e.l.f Beauty brand. Obviously, units started trending down after the price increase. I mean where do you think that e.l.f consumers moving to? Are they trading enough, trading across, maybe buying less often, all of the above, I guess, how to get those customers to come back.

So I'd say, first of all, even since the time of our price increase, we continue to pick up market share. In FY '26, we picked up 115 basis points of market share in color cosmetics. So I would say we're still a net gainer overall. And that really of the 920 basis points of share, we've picked up over the last 7 years. So we're still confident of our ability to continue build market share. You're going to see some periods where the market share doesn't grow other periods where it's stronger.

But overall, we still see the opportunity to build market share, and we're sourcing that market share across across the category, we usually don't call out the competitors we're sourcing from, but it's a pretty bRhode array of where we see that. We also continue to pick up additional households from a consumer standpoint, not only are we the #1 brand amongst Gen Z, Gen alpha millennials, but we've also picked up more Gen Xs and more households throughout the year. So we like the core fundamental dynamics we see from a consumer standpoint, including all of our equity ratings that gives us confidence as well.

The next question comes from Bonnie Herzog with Goldman Sachs.

I just had a quick follow-up question on the slower innovation this spring. Could you talk to space and whether you've gained or possibly lost shelf space? And then are there any idiosyncratic factors to keep in mind with respect to sell-in versus sell-through trends over FY '27 -- or do you expect shipments to track more in line with consumption trends.

We continue to pick up space driver of our growth over the years has been our productivity growth dollars per linear foot. But we've had a good track record of consistently picking up space. We've never lost space even in this latest cycle. We talked about picking up a pretty significant space at Ulta Beauty. We started rolling out those Walmart highest vision sets. We have additional space. We will talk about some of the other space we have coming in subsequent calls and then the focus we have.

And it's not just on else, but across the portfolio Natrium also picked up additional space but continue to expand Walmart entering Walmart with Naturium in a subset of their doors. We're really pleased and Walmart is terms of what they're seeing. So it gives us even greater opportunity there and certainly low with our lead expansion coming in Europe is going to continue to pick up.

So we do not anticipate any space we don't see any signs of any space losses, if anything, we still are dramatically under spaced when we a take a look at their sales relative to the space allocation. e.l.f is still dramatically under space relative to any of our competitors. So we still see more room there.

And then on the sell-in, sell-through trends we expect that to track much closer this year. As we've said, over time, the consumption and net sales will balance out. And certainly I know we talked about some of the dynamics between Q1 and Q2. But as we go throughout the year, you should see that much closer.

The next question comes from Filippo Falorni with Citi.

I wanted to ask on some of the international markets that you've called out in the past, especially the U.K. and Germany. You had some weakness there in prior quarters have you seen some improvement? Or are you expecting some improvement in fiscal '20? And then, Mandy, just a quick housekeeping between EBITDA and net income, is there any particular driver that gets you to a much slower growth in net income versus EBITDA, whether it's D&A, net interest or other income.

So first on international markets, we definitely have seen a pickup in both the U.K. and Germany. Recall last year, really even more than the last year, we've been facing a particularly heavy promotional environment in the U.K., the state and U.K. consumer. Our teams put focused action in place, including awareness building advertising and marketing support as well as really good retailer support across Superdrug boots and other retailers.

So in U.K., we've definitely seen pickup. In Germany, we were just lapping the massive launch we have at Crosman Germany. Our launch into DM has gone well, and we're seeing better trends in Germany overall we still have further to go in both markets, but I'm encouraged by the trend that we have and where we're headed, particularly with the support that we have in both of those markets, while we continue to selectively see additional markets.

And then just on the housekeeping item, things to keep in mind the amortization of intangibles related to the Rhode acquisition and interest higher interest expense we go through now carrying a full year of higher debt also related to the Rhode acquisition.

The next question comes from Rupesh Parikh with Oppenheimer.

Two questions on Rhode. So first, as you lap the launches in markets such as the U.S., just curious what type of growth rates you'd expect in consumption -- and then second, just as you look at Rhode in the intermediate term, just curious in the types of growth rate you'd expect for the brand.

Rupesh, we've talked about growing at about an 80% year-over-year in this past fiscal year. We continue to expect very strong growth rates on Rhode. We haven't disclosed the specific amount. What I tell you when I take a look at the U.S. versus international market, the U.S., as we said in our prepared remarks, Rhode is the #1 brand that carries. And we've continued to see very strong momentum in Sephora in North America.

And if you go into any of the coders, we're doing that with 1 day relative to competitors that as any 2 or 3 different basis. So it's a very similar story to a dramatically under space relative to the productivity. The biggest issue we've had on Rhode is keeping up with the consumer demand. We have enough capacity to making sure those stores stay replenished is probably the #1 complaint we get.

So we still have a ton of opportunity even within the U.S., both in terms of our footprint as well as from a replenishment standpoint to continue to fuel that. And then particularly excited about the launch we have coming up with Europe, 19 countries, Sephora is going on Rhode based on the success that they've seen of the brand. We have very high expectations of that.

So you'll continue to see momentum. So we feel good about lapping both the North American launch, the U.K. launch in MECCA then having additional markets on the Rhode in addition and again, it goes back to the momentum that we're seeing on that brand. Every single launch we've done has been bigger than the prior one. And you continue to see the level of consumer demand that's unlike any other brand senior leases ever seen.

The next question comes from Oliver Chen with TD Cowen.

As we think about marketing spend as a percentage of sales and it moderating, what's happening there in terms of decisions you're making to optimize incremental return on ad spend yet pull back yet you're undergoing some innovation changes? And then a second question is thinking about Materion and your inter excellence there. Are there synergies that you can leverage across the platform with that continue to push forward with core e.l.f Skin care?

Oliver. So on marketing spend, we've outlooked at 23% to 25% range. And last year, we spent around that 24% range. And so -- it still gives us room to go up to 25%. If we wanted to be lean into that, Tarang talked about maybe leaning into some more consumer-facing things and with the tariff rebate, that may be coming through here this year. And so that -- we feel that 23% to 25% gives us the adequate room that we need from a marketing perspective. And so certainly, an opportunity to optimize, but also room for us to land if we saw the need there.

I would add to that. The team is constantly optimizing. When I take a look at some is within our marketing a few years ago, getting into awareness building advertising was a big unlock for us. We continue to unlock as we go across each of our vehicles, and the team is constantly taking a look at that. We really good about it. Our marketing works best when it's paired with really great innovation, too. So I think a little bit what you're seeing is us looking at marketing as we have some of these launches coming up, making sure we're putting enough support behind the key launches while protecting the core as we go through.

But the ROIs continue to remain exceptionally high multiples above the category. So we feel great about our marketing investments, and we feel great what they've done for our businesses long term. And then in terms of Naturium, I would say, look, each of our brands from a consumer-facing standpoint, are separate. They're unique, complementary distinct brands. But we certainly -- I think it's been really helpful having the term as part of the portfolio is the time we've learned from Naturium on the scheme care side that's benefited of skin and vice versa.

Same is true with Rhode, as we've taken a look across each of these brands, 3 of the fastest-growing skincare brands. There are definitely opportunities across share learnings, but each brand has its own unique focus and opportunity ahead.

The next question comes from Javier Escalante with Evercore ISI.

I would like to double click on Rhode again, perhaps from a different perspective and perhaps maybe could help us with this. So basically, radical 2026 -- so because it is a pro forma versus a reported Rhode. So basically, what is the number that we should use for fiscal I would remind it would be pro forma. So that $390 is a pro forma, it's reported, so you can help us with that I'm also trying to understand the evolution of Rhode business model. So there is a D2C in a direct-to-consumer aspect to it. And then there is the wholesale aspect to it that goes to Sephora U.S. So if you can help us at least know what percentage of whatever number you are going to get for Fiscal '26 is wholesale versus D2C?

Yes. So I'll start with the fiscal '26. So the $390 million is a pro forma number. The incremental post acquisition was around $290 million thatRhode delivered in fiscal '26.

And then we haven't broken out DTC versus wholesale, but I tell you the DTC, we always modeled as part of our acquisition economics, what type of what we see in DTC given how much retail going into with Sephora and with MECCA and that's held up exceptionally well. We continue to see real strength in our DTC business. Primarily because part of the strategy is we do have unique items that you'll look for us on our DTC site that particularly as some of our new innovation that get disproportionate amount of attention and interest.

So DTC has actually performed quite well over time, we would expect -- we haven't said where the percentage is right now, but over time, particularly with the footprint that we're building in Sephora and MECCA, we'd expect the retail side of the business to be bigger but will be pretty significant.

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

Okay. Well, thanks for joining us today. I'm so proud of our incredible team at e.l.f. Beauty for delivering another year of industry-leading growth. We look forward to seeing some of you at our upcoming investor conferences over the next few weeks and speaking with you in August, will discuss our first quarter fiscal '27 results. Thank you, and be well.

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

Good afternoon, everyone. It's my pleasure to welcome e.l.f. Beauty back to CAGNY. They are a category disruptor in beauty, owning the #1 brand by unit share in U.S. color cosmetics and 3 of the fastest-growing skin care brands. The company has been busy since the last time they were on the CAGNY stage. They continue to drive share gains on the core e.l.f. brand, and they also acquired the Rhode brand last year, which has quickly catapulted to becoming the #1 brand in Sephora North America and has seen record-breaking launches in the U.K. and Australia. E.l.f. has significant runway for growth ahead, both domestically and internationally across its portfolio of brands, and we look forward to hearing more about their growth initiatives in today's presentation. We always appreciate how they help us CAGNY members look like our best selves and hope you have a chance to stop by the breakfast e.l.f. is sponsoring tomorrow morning. Thank you for the breakfast.

Without further ado, I'd like to introduce Chairman and CEO, Tarang Amin; CFO, Mandy Fields; and CMO, Kory Marchisotto. Tarang, the floor is yours.

Thank you, Olivia. It's a pleasure to be here. Joining me today on the stage are going to be Mandy Fields and Kory Marchisotto. Now let's get the legal disclaimers out of the way. We're known -- this is the third time we're presenting at CAGNY, and we're known to put on a pretty good show. So since we're next to Disney, we thought we'd take that theme a bit, and we'd ask you to join us in the e.l.f. rocket ship for a ride like no other. After all, it's an e.l.f. world after all. And you were probably wondering what do you mean by e.l.f. world after all.

Well, we're going to use a contrast between the real world and what the e.l.f. world is to bring that to life. Now in reality, in the real world, it's unlikely that a Kenyan-born Indian immigrant just happy to be in this country, yes, this is me in the second grade. We spent 35 years in the consumer space in every category from hair care to paper, to food, to pet to nutritional supplements, leading one of the fastest-growing consumer companies. And taking that company in beauty to the very top of every list from Barron's to Fast Company to Fortune.

It's also unlikely that Mandy, who had aspirations of being on the big stage, would find herself in investment banking, in oil and gas and in grocery, just to find her happy place at e.l.f. with big bright color and absolutely no regrets or Kory Marchisotto, who -- and also Mandy taking obviously a perfect place for women in the workplace and strengthening our financial position. Kory, who I call our lightning bolt, spending 2 decades in Prestige beauty, found herself sticking as our CMO and really propelling e.l.f. to the very top of kind of the marketing Hall of Fame as well as one of the most innovative marketing companies in the world.

Now the 3 of us are going to be your guides today. I'm going to take you through the superior performance of e.l.f. Beauty and how differentiated we are relative to the rest of the category. Kory will cover the multiple areas of competitive advantage we have, and Mandy will talk about the significant whitespace we have ahead of us. Let's take our magic wand, and it's an e.l.f. world after all. Now our vision is not only to be a different kind of beauty company, but to be a different kind of company, period. E.l.f., which started with a simple acronym, e.l.f., by the way, stands for eyes, lips and face, had a bold change agenda and disruption is part of our DNA.

We are founded selling premium cosmetics for $1 over the Internet in 2004. Everyone thought we're crazy. This is 22 years ago. You couldn't sell premium cosmetics for $1. You certainly couldn't sell them over the Internet and impossible to make money at those price points. Yet that spirit of disruption is very much with us to this day. Walt Disney said, it's kind of fun to do the impossible. Our saying is anything is of e.l.f.ing possible. Now you can see that in the strength of our brand portfolio. Our namesake e.l.f. Cosmetics brand is the #1 unit share brand with clear line of sight to #1 in dollars.

Our e.l.f. Skin brand, which we introduced just a few years ago, is already the #11 mass skin care brand with the same model as e.l.f. Cosmetics and bringing the best of beauty and making it accessible and growing at more than twice the category growth rate. Naturium, the clinically effective biocompatible skin care brand we bought 2.5 years ago, is already the #5 masstige brand and growing multiples of the skin care category as well. And our latest acquisition, Rhode, which we acquired in August, is already the #1 brand amongst the Sephora North America and the U.K. with some of the fastest growth rates, I still believe one of the fastest growth rates throughout all of beauty.

Now the power -- these power of brands have allowed us to defy gravity in terms of our results relative to the real world. Now in the real world, beauty is one of the best consumer categories out there, exhibiting a 4% CAGR over the last decade. But in the e.l.f. world, our CAGR over the last decade has been 23% net sales growth, 6x that of the category. Now in the real world, there are 516 public consumer companies that have been averaging about 5% growth per quarter. In the e.l.f. world, we're 1 of only 6 public consumer companies out of that 516 that's been averaging over 20% growth per quarter.

In the real world, those 516 public consumer companies average about 4 consecutive quarters of net sales growth. In the e.l.f. world, we just delivered our 28th consecutive quarter of net sales growth. That's 7 years of consistent category-leading growth. Now in the real world, the top 10 mass color cosmetics brands over the last 5 years have lost about 30 basis points of share, telling you how competitive a space we're in. In the e.l.f. world, over that same time period, we've gained 800 basis points of market share. And not only have we gained 800 basis points of market share, but we've done it 28 consecutive quarters. We haven't found another brand that's been able to do that.

Now I got to be honest with you. I'm sometimes annoyed with some of you in the audience here, right? Because in your infatuation of weekly scanner data, short-term differences between shipments and consumption, perhaps even market valuation, you've kind of missed the biggest thing in the room here, the elephant in the room. The hardest thing to do in the consumer space is grow market share. We're in competitive categories with sophisticated competitors, being able to grow even a little bit of market share is something to be able to grow 800 basis of market share and do it 28 consecutive quarters is an entirely different universe.

Now I'm not so annoyed, but I will show you the market share one more time. This is us against the top 10 brands in the color cosmetics space. You can see the level of over delivery and the consistency of those results. The other thing in the real world is we're in a very competitive market with spot. There are 1,800 cosmetics and skin care brands tracked by Nielsen alone in the U.S. But the great thing about this category is it's very hard to scale brands. While there are 1,800 cosmetics and skin care brands, only 14 have passed $200 million in retail sales.

Now in the e.l.f. world, we have 4 brands that have passed that threshold. And these power brands in turn give us incredible strength. In the real world, most companies are hoping they can appeal to one generation. In the e.l.f. world, there are 3 generations we appeal to. We're the #1 brand by far amongst Gen Z, Gen Alpha and millennials. And we also have multigenerational fandom picking up every single demographic and income group in the process.

In the real world, one hopes to captured lightning in a bottle one time in their career. In the e.l.f. world, we have -- in fact, the lightning in the bottle one time in their career, I'm amazed by some of the big companies here. They only talk about 1 or 2 brands. It makes me wonder about what about the other dozens of brands in their portfolio, right? The only thing you're going to hear us talk about is the 4 growth brands we have, and all 4 of them are actually growing, 4 lightning in the bottle between e.l.f. Color, e.l.f. SKIN, Naturium and Rhode.

And little examples. I already talked about Rhode being the #1 brand at Sephora. Naturium, the #1 body wash with Ulta and our Power Grip Primer in e.l.f. Color being not only the #1 item -- #1 SKU in mass, but also Prestige, #1 item by far. And we win with the winners. We have leading productivity amongst almost every one of our retail partners around the world.

Now our results are really driven by our team. We have a passionate team of owners and a high-performing team culture, and that really fuels everything that we do. In the real world, amongst consumer companies, employee engagement is about 72%. In the e.l.f. world, we're 1,800 basis points higher than that in terms of level of engagement, and it shows in the results we're able to deliver. Now we have a small but powerful team. And that team, we believe, has a real competitive advantage in representing the communities we serve. Our team is 71% women, 78% Gen Z and millennial, 43% diverse, absolutely reflecting the communities that we serve. But it's not just our team. We believe in placing women and diversity in the highest seats of power. That's why our Board of Director has 60% women and 40% diverse representation, making us one of only 16 public consumer companies in the U.S. out of over 3,700 with those types of stats.

Now in the real world, the outlook for the 516 public consumer companies is about 4% net sales growth. We just raised our outlook in our Q3 earnings to our net sales growth this year being 22% to 23%, again, almost 6x with the real-world average, shows our confidence in the future. And as great as those results are, what I'm most excited about is we have the ability over the next few years to more than double our business again that Mandy will explain shortly. So it is an e.l.f. world after all.

With that, I'm going to pass magic baton over to Kory to talk about our competitive advantages.

Attention, everyone. Please keep your eyes, lips and faces inside the vehicle at all times. I'm Kory Marchisotto, your experiential tour guide for today, and I am about to take you on the ride of a lifetime. And since we're going to be together for about the next 20 minutes, I would encourage you to get cozy with me and feel free to call me by my nick name. See my nick name is K-BO$$ with 2 dollar signs. The first dollar sign, probably no surprise to anyone in this room was given to me by our CFO, Mandy Fields, because she says spending money is my core competency. The second dollar sign was given to me by our CEO, Tarang, because he said, turning marketing dollars into hard-working ROI is also my core competency.

And since we like to have a good time when we're in Disney World, especially, and Walt set us up perfectly by saying it's kind of fun to do the impossible, join me on this ride where we're going to show you how e.l.f. Beauty makes the impossible possible time and time again. Now I'm sure most of you have been to Disney and you don't like to wait in line. The truth is nobody does. At e.l.f., you can skip the line because we democratize access. What started as democratizing access to the best of beauty has since gone far beyond that. Yes, we make high premium quality products available at accessible price points. We also liberate access to employee equity, granting every single e.l.f. meaningful equity every year everywhere in the world.

We also democratize access to boardrooms, putting women and diversity in the highest seats of power. We democratize access to playing fields, opening pathways for growth for women in future leadership positions. And we even liberate access to wildest dreams by putting the first Vietnamese astronaut in space. And we do it by building brands that disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility in every single thing we do. And that is how we make the world a better place for every eye, lip and face.

Now I want you to fasten your seatbelts, but not the kind you put around your waste. I'm talking the harness. Like when you're getting ready to get on a roller coaster, are you all with me, like reach behind you, pull on because we are going to have a really good time. And this is the kind of good time that we have at e.l.f. And that's not just about having fun on a ride. It's about being part of the secret ingredient of success because it's hard to beat a team that's having a good time. And we have a good time as we build our competitive moat with 3 core competitive advantages: our core value proposition, our powerhouse innovation and our disruptive marketing engine.

Let's start with the heart of the matter, our core value proposition. We have built a place of belonging for every eye, lip and face, putting the capital E in every. Because after all, 2/3 of Americans live paycheck to paycheck and premium beauty is really expensive. And we don't think people should have to trade a meal for a lipstick. And that's why for 22 years, we've been working really hard, honing our skills to keep our price point below our mass competitors and far below the entry-level prestige while at the same time, delivering quality that is on par with prestige or even higher at a fraction of the price.

You see the real math at e.l.f. is that every time you buy a piece of e.l.f., you actually save money. And this is not just girl math. This is real math we're talking here. You see true happiness is having these incredible products on your vanity and part of your everyday routine. But the joy really comes from the $256 that it puts back into your wallet. And for those of you who are getting the Park Hopper Pass, this is $264 to get entrance into Disney. So buy those 4 products and you too can take one of your children to Disney on the Park Hopper Pass.

But the real energy of e.l.f. comes from the zero compromise, because when you buy e.l.f., you have zero compromise to your wallet, to quality, to safety or to your values. And being a value brand that delivers values is what has allowed us to be far ahead of the competition in unit volume. And I'm going to pause here on this slide for a minute because this is really important when you think about what really drives is unit growth. Our 5-year growth in units is 16% CAGR, far ahead of the top cosmetic brands in our space. This is how you make the impossible possible. But the value proposition alone is not enough. We need to couple it with our powerhouse innovation.

And our powerhouse innovation is anchored in the creation of Holy Grail. Now Tarang told me that many of you might not know what a Holy Grail actually is. So I'm going to pause here to explain it. A Holy Grail is a category disruptor that creates a viral obsession because it delivers superior payoff, making it a cult favorite. It's really hard to do a Holy Grail at all. What we do at e.l.f. is just like Walt said, we make the Impossible possible by creating a constant state of Holy Grails. We have an entire portfolio of these cult favorites and these viral obsessions. But that is not the only innovation pillar that we have. In addition to creating Holy Grails, we also seize whitespace with new textures and formats and whitespace opportunities. We have buzz-generating SKUs, whether it's through our Liquid Death or H&M collaborations or our Jumbo Power Grip Primer.

And we also take the signals from everything we do to determine what gets built into a franchise. In the last 7 years alone, we have built 4 franchises in our house that have scaled above $200 million. Halo Glow, Glow Reviver, Power Grip and Camo are bigger than brands in their own right. As Tarang mentioned before, only 14 brands have been able to scale above $200 million. We have 4 franchises that have exceeded that threshold. So right now, I'm sure you're all asking yourselves, well, how the e.l.f. do you actually do it? I'm so glad you asked that question because I have the answers. You see in the real world, manufacturing is either fully owned or fully outsourced. But what we've created at e.l.f. is a hybrid model. And that hybrid model is bringing together asset-light manufacturing with depth of expertise. We have over 100 incredible e.l.f's in Shanghai that have been working to hone that skill with our partners in our factories with a depth of expertise that spans over 2 decades. And that combination is what allows us to deliver quality, cost and speed that is unparalleled by any brand in our industry. And that is also what's allowed us to deliver unbelievable results. We have a #1 or #2 ranked position in 21 leading categories in 2025 alone.

And now to put that into context, compare that to the 8 categories we had in 2018, showing our ability to deliver consistent category-leading penetration in each of these categories. Now the one I want to pinpoint here as a mini case study is Power Grip because it's one thing to know that it is the best-selling cosmetic product in all of mass and prestige, and it's another to know why that is so unique and why it is so rare. It's so rare because Primer is a category 12. It is very far off in the solar system as the tiny little dut, and yes, this is built to scale. It is the 12th smallest category in cosmetics. And yet, we created a product that is bigger than the #1, #2 and #3 categories. When you look at the top 7 best-selling products in mass cosmetics, Power Grip Primer is #1 by over 1 million units, ahead of the #1 best-selling mascara in the market.

What's even more impressive than that is of the top 7 selling SKUs, 3 of them come from the Power Grip franchise alone. In the real world, a brand will launch a product that takes a slice of the pie. But in the e.l.f. world, we make the entire pie bigger. Since launching Power Grip Primer, the entire Primer category has more than doubled in size while still leaving enough room for e.l.f. to have over 60% share. And you can see the consistency in our ability to use this unbelievable innovation engine where we have 4 of the top 10 products in 2025 on top of the 6 of the top 10 launches we had just 1 year prior. And while our value proposition and our powerhouse innovation is unparalleled, it's when you combine it with our disruptive marketing engine that the real magic happens.

But what exactly is marketing in the e.l.f. world? Well, it's uniquely built. I heard a lot in this conference from a few of other brands that talk about being consumer-centric or community-centric. But does their organization represent those words? At e.l.f., we built a marketing engine that is essentially a giant hug wrapped around our community, an end-to-end ecosystem that allows us to move from product concept to community with 0 friction at e.l.f. speed, a true competitive advantage, ensuring that we're organized exactly to meet the unique needs, wants and desires of our growing community. And where is that community? The truth is they're everywhere, and we're able to meet them everywhere they are across our social ecosystem, the primary channels, secondary channels as well as new and emerging platforms. And when you think about e.l.f. being an early adopter in all of these spaces, it's no different than where we stand today, conquesting new frontiers like TikTok Shop, where we're the fourth biggest brand out of over 6,000 on the platform or Roblox, where we have the #1 brand experience or Twitch, where we're among the top 1% of brands on the platform and the first to pilot live stream selling.

But it's not just about conquesting new frontiers. It's about creating a connected commerce ecosystem where all of the different pieces and parts work in tandem to build a fully connected commerce ecosystem where we have content, community and commerce, all working hand-in-hand. And they're working with zero distance, zero distance between us and the community we serve. And that's not lip service. That's actions and behaviors that we lead here in this room in the highest seats of power from the C-suite. I torture Tarang quarterly by making him go on TikTok. Well, he says I torment him, but I actually think he likes it. 15,000 people showed up in December to talk to Tarang about career advice, products they want to see in the pipeline and how they too can work at e.l.f.

Now Mandy is also gets sequestered onto our Twitch live stream. When we launched Fortune Island, a new game on Roblox, we live streamed it on Twitch and Mandy showed up to give financial advice. 110,000 people showed up to meet our CFO. That is zero distance. And the signals that we continue to take from our community who says, you're not just a beauty brand, e.l.f., you're our friend and are confident, and we want to go through life with you together is why we created our Zero Distance substack where we essentially turn e.l.f. inside out, sharing everything, all of the magic is there for our community to share in the joy with us.

And that's what creates the cultural relevance and the emotional resonance because our community knows by our behaviors that we are of them, by them for them, co-created with them, bringing together the best of beauty, culture and entertainment to create a world that's e.l.f.ing entertaining, a world that they grant us their most precious asset, their time because we're worthy of their time. A world that's e.l.f.made. And in this e.l.f.made world, a world that nobody else has, you can find things like Liquid Death or new fragrances from e.l.f. and H&M. We collab with like-minded spirited disruptors, not only in other brands, but also in sports, in music or you can join us in making an e.l.f.ing Impact with our 2% pledge.

And right now, you might all be thinking, okay, this sounds maybe a little bit like smoking mirrors or is this theoretical or is this a marketing philosophy. The truth is this is a scalable and repeatable ecosystem that we've created. And I'm going to run water through the pipes for you by showing you our latest activation at the big game. We brought together an incredible ensemble cast led by the brilliant Melissa McCarthy. And it all started by putting our ear to the ground by tuning the e.l.f. in. And just what were we actually tuning into.

[Presentation]

Challenge accepted Bad Bunny, challenge accepted. While he was challenging America to learn Spanish in 4 months or to learn Espanol in 4 months, we were already speaking e.l.f. Spanol. What does that mean? We have created a chart-topping music hit in Ojos. Labios. Cara. with Manuel Torito. We already had 3 telenovelas under our belt or e.l.f.novelas as we call them at e.l.f. with Descubre e.l.f.ecto, which were equally as popular in Mexico as they were in the U.S. We were already working on our e.l.f. Spanol skills. Why? Because the Latin community is incredibly important in beauty over-indexing in our category. But they don't just over-index in our category, they over-index with e.l.f.

They're 18% of our buying households, 29% higher than the category average. We also listen and know that people want humor. 90% of people will remember an ad that's funny. And Gen Z specifically says they want brands to make them laugh. They also want Glow Reviver lip oil. How do we know that? Because one is sold every 2.4 seconds, and this has been our best seller for 2 years running. So we did what any brand would do. We called Melissa McCarthy and asked her to join Dr. Tito and Telenovela Royalty, Itati, Gonzalez together with Glow Reviver Lipoil to create a piece that was humorous and entertaining, culturally relevant where it met the moment and also highlighting the absurdly incredible benefits of our Glow Reviver lip oil in the creation of Melisa!

[Presentation]

Who wants to try it with me [indiscernible] Andrea, you got it. Okay. Well, by every measure, it was an e.l.f.ing touchdown impress impression, sentiment, views and also sales, traffic and visits to our site. But what's most important here is the core competitive advantage of e.l.f. Speed. You see most companies take anywhere from 12 to 18 months to create a big game ad. But get ready for this. We did ours in 11 days from shoot to showtime. That is how you put yourself at the center of the cultural zeitgeist with the finger on the pulse of what's going on and meet the moment in real time.

So many of you may now be asking, well, so e.l.f.ing What? What does that actually mean? And how does that translate into the $2 signs you started with in the beginning?

It's not an accident that she says Mathematica. So let me show you the Mathematica. We have been increasing our marketing investment over time as we realize gross margin benefits. We've reinvested it back into the marketing engine because marketing works. How do we know it works? We know it works because we studied it, and we're delivering multiple ROI above benchmark consistently over time. But that's not the only measure of success. We also look at our unaided awareness. Do more people know about us? Are more people talking about us in addition to buying our brand? And the answer to that is resoundingly yes. In the last 5 years alone, we have tripled our unaided awareness in every major country that we track, a true mark of success in a marketing engine.

So when you boil down our core competitive advantages, the value proposition is the heart, the powerhouse innovation is the superpower and the disruptive marketing engine is the astronaut suit that allows you to blast off into space and conquest new frontiers. The most important measure of success is the community that we wrap ourselves around with a giant hug. What do they have to say about all this? Across every measure, core value proposition, powerhouse innovation, disruptive marketing engine, they continue to score us up and to the right.

And they reward us by purchasing our brand. 9 e.l.f. products are sold every second somewhere in the world, making e.l.f. the most unit brand of any brand in our category and putting more e.l.f. products in the hands of consumers than any other brand. And if that is not making the impossible possible at fun, I don't know what it is. I'm going to turn it over now to Mandy Fields, who's going to walk us through our whitespace opportunities.

Gracias, Kory. I've been sent up here to do the Mathematica. So that is what I'm going to focus on. And I'm grateful because I've heard the CFO has been getting squeezed at the end of these presentations, but I have plenty of time to get through our portion. So I'm going to talk to you a little bit today about the consistency of the results that we have delivered and why you'd like to ride that ride over and over again with e.l.f. I'm also going to talk about the whitespace that we see ahead of us.

So if we take a look back over the last 10 years, we've delivered a 23% net sales and adjusted EBITDA CAGR while picking up 105 basis points of market share each and every year as we've gone through. That's incredible consistent category-leading growth. We've gotten a lot of questions recently as well on the consistency of the shipments versus consumption and how those marry up over time. And so we took a look on a 2-year, 3-year and 5-year basis, that's pretty consistent as well. Shipments and consumption marry up over time.

So we talked a lot about the real world versus the e.l.f. world today, and I'm going to turn to gross margin where we talk about the real world. The real world, 41% is what you're looking at from a gross margin standpoint on publicly traded consumer companies. And that's where e.l.f. was about 12 years ago. But as Kory mentioned, we've built up that gross margin over time, now outlooking 70%, and that's allowed us to make those investments in marketing, in team and infrastructure over time.

And from an adjusted EBITDA margin standpoint, 14% is what you're going to see on average in the real world versus e.l.f. at 20% or more as we've gone through. Again, strength of the P&L, allowing us to make those investments that we need behind our growth initiatives as well as supporting our strategic extensions, which includes the acquisition of Naturium and more recently, the acquisition of Rhode as well. We've been able to do all of this while maintaining our net leverage at less than 2x, illustrating the strength of our balance sheet as well.

And now it's time for us to exit through the gift shop, and we do have e.l.f. bags ready for everyone. Before everybody loses their mind and rushes out of here, we're going to get through the whitespace opportunity that we see ahead. But if you want to test one of your kids and let them know, there is Rhode in the bag this time. And so if you want to get folks lined up, you might want to do that. But first, let me walk you through the whitespace that we see.

We see an opportunity to more than double our net sales over the coming years across cosmetics, skin care and international. And I'm going to walk you through each, starting with cosmetics. In color cosmetics today, nationally, we have a 13% market share. We're the #1 unit share brand and the #2 dollar share brand overall. And we have our sights set on becoming the #1 dollar share brand in the marketplace. Now why do we believe we can do that? Well, one, we've already done it from a unit share standpoint. And secondly, we've done it at our longest-standing retailer target. We have a 21% share, and we are the #1 cosmetics brand that they carry.

Now how have we gone about that? Our secret sauce is really in our productivity. We are the most productive brand carried by our top retailers as we go through, and we've grown that productivity over time. Now growing that productivity has allowed us to have a consistent track record of space gains over time. I always say productivity is the unlock to space gains. And even when we look at the space that we have across our retailers, it illustrates an opportunity that we can go even further with our retailers, each and every one of them as we go through. There's an opportunity for us to increase our footprint over time.

We also believe there's an opportunity to continue to build share within the segments that we have leadership. Kory talked to you about just in 2018, there were only 8 segments where we had a #1 or #2 position versus today, we have 21 segments that have a #1 or #2 position, showing that we have the innovation and the ability to continue to build share in these subcategories. We also believe we have opportunity across face, lip and eye as we go through. If you think about the big subcategories within each foundation, lip color and mascara, we have a great opportunity to continue to conquest those subcategories and continue to build share as well in cosmetics.

What we believe is even a bigger opportunity is to pursue growth in skin care. We've nearly doubled our skin care penetration over the last 5 years, now representing 20% of our business. And we took a look at total distribution for skin care. And we looked at the top 10 brands and then compared that against our most distributed skincare brand, e.l.f. SKIN, Naturium and Rhode. And we believe this illustrates the opportunity for us to continue to distribute our skin care more broadly, continue to pick up share and grow our skin care portfolio. We also see an opportunity from an innovation standpoint across e.l.f. SKIN, Naturium and Rhode, building franchises just like we've done in color cosmetics, whether that be e.l.f. SKIN with our Thirst Burst franchise, Naturium with our Glow Getter franchise or Rhode with the glazing franchise that they have. We see a real opportunity to leverage innovation to continue to build share in skin care.

And last but not least, international. We see a tremendous opportunity to grow our international penetration. Today, 20% of our net sales are outside of the U.S. versus 70% for our global beauty peers. We really have a two-pronged approach as we think about how we're going to drive that international penetration even further. One is driving productivity in our largest market; and secondly, selectively expanding into new markets. And we've done both successfully. Over the last 5 years, we've delivered a 55% net sales CAGR in the international markets.

A lot of that has been driven by where we have our largest markets in the U.K. and Canada. And now we have a beautiful portfolio of brands to take globally across Rhode, Naturium, e.l.f. Color and e.l.f. SKIN. Let's start with e.l.f. Color. We took a look at the leading brand in color cosmetics and saw that they're distributed in 120 countries. When we looked at e.l.f. Cosmetics, we're only in 16 countries today. With those 120 countries, the leading brand is driving about $5 billion in retail sales. e.l.f. Cosmetics on 16 countries is driving $2 billion in retail sales, illustrating the opportunity for us to continue to expand our footprint internationally.

On Naturium, we just acquired Naturium 2.5 years ago or so, and we have taken them from about 3 customers and doubled their customer penetration and international footprint over that time frame. We see a lot of potential for Naturium globally on the road ahead. And then Rhode. Rhode, we've outlooked at $360 million in net sales on an annualized basis this year. That's a 70% growth, and this is only a 4-year-old brand. In every country that Rhode has launched in, they have broken records. Here in the U.S. and Canada, 2.5x larger than any launch Sephora has had.

In the U.K., 5x larger than any launch Sephora has had. And in MECCA, in Australia and New Zealand, it is their largest launch they've ever had. There's a lot of pent-up demand for Rhode. And currently, we're only -- we're in less than 20% of global Sephora doors. And so certainly see an opportunity to continue to expand distribution on Rhode as well. So there you have it across cosmetics, skin care and international, we see an opportunity to more than double our sales over the coming years. And so why come along for the ride? Well, I'm going to tell you.

One, we democratize access. We are focused on bringing the best of beauty and making it accessible to every eye, lip and face. We have built a durable competitive moat. As Kory walked you through, our value proposition, powerhouse innovation and marketing engine underpin that competitive moat. It's really replicable from our perspective. We are delivering consistent category-leading growth and market share gains, as Tarang highlighted. And I just walked you through the tremendous whitespace opportunity that we see on the road ahead across cosmetics, skin care and international across our portfolio of brands.

So I hope you join us for the ride because it is an e.l.f. world after all. And that's it. We're going to take questions over in the breakout room, and we thank you so much for having us.

Thank you for joining us today to discuss e.l.f. Beauty's Third Quarter Fiscal '26 Results. I'm KC Katten, 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 Tarang.

Thank you, KC, and good afternoon, everyone. Today, we will discuss our third quarter results and our raised outlook for fiscal 2026. I am proud of our incredible e.l.f Beauty team for another quarter of consistent category-leading growth.

In Q3, we grew net sales 38% and adjusted EBITDA 79%. Q3 marked our 28th consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of high-growth companies. We're one of only six public consumer companies out of 546 that has grown for 28 straight quarters and average at least 20% sales growth per quarter. We're excited by the consumer engagement we're seeing across the beauty category and especially the momentum of our brands.

On a consumption basis, our namesake e.l.f Cosmetics brand grew 8% in the U.S. this quarter, 2x the category. We increased our market share by 130 basis points the largest share gain among over 700 cosmetics brands tracked by Nielsen. e.l.f SKIN consumption grew 16% in the U.S. this quarter, also outperforming the category 2x. Naturium, our clinically effective biocompatible skin care brand, which we acquired 2 years ago, continues to drive strong growth.

Rhode, the high-growth beauty brand founded by Hailey Bieber which was acquired in August, delivered an outstanding quarter, achieving the #1 brand ranking in Sephora North America and executing another record-breaking launch with Sephora in the U.K. The strength of our brands is evident when viewed in the context of the overall beauty market. While beauty has comparatively low barriers of entry, very few brands have been able to scale. Of the nearly 1,800 cosmetics and skin care brands tracked by Nielsen, only 14 have surpassed $200 million in annual retail sales. We have 4 of these 14 brands.

The combination of our value proposition, powerhouse innovation and disruptive marketing engine continue to fuel our results and our outperformance relative to the category. Let me take a moment to discuss a few of the milestones we achieved in Q3. Starting with our value proposition. We believe in democratizing access to the best of beauty. Each of our brands offer accessible price points relative to the competitive set. For context, the average price for e.l.f cosmetics is $7.50 today, as compared to approximately $9.50 for legacy mass cosmetics brands and nearly $30 for prestige brands. 75% of e.l.f.'s brand product portfolio sits at a phenomenal value of $10 or less.

While there are other brands with low price points, our real advantage is our ability to also deliver exceptional quality. Our quality scores have gone up every year over the past 10 years. Consumers love e.l.f for delivering an incredible price point and quality that is often better than prestige. Looking to innovation. We have a unique community-led approach to innovation across our brands, focused on democratizing access to the best of beauty through our premium quality products at extraordinary prices. Our namesake e.l.f. brand held 4 of the top 10 new products in all of mass cosmetics in 2025 on top of holding 6 of the top 10 new products in 2024.

The consistency of our winning innovation is supporting our share gains across segments. We've more than doubled e.l.f. Cosmetics market share over the last 5 years and see significant opportunity ahead. As compared to the 22% share we have in face makeup, we have a 13% share in Lip and a 9% share in Eye. We have significant white space in these large segments and believe we have the innovation engine to conquest them.

Spring 2026 is an exciting time for innovation. Building on the success of e.l.f's glow reviver lip oil in 2024, and melting Lip balm in 2025. We recently launched our Glow Reviver slipstick at a $10 price point compared to a prestige item at $48.

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We're pleased with the initial reaction we're seeing from our community. With slipstick already achieving the #1 new lipstick on both Amazon and TikTok Shop where it debut. We're also excited about e.l.f Soft Glam Satin Concealer, our first concealer innovation in the last 5 years. At an incredible $5 price point compared to the prestige item at $32, we're answering our communities call for value.

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You can expect to see our Spring Innovation rolling out with our global retail partners over the coming weeks. We're leaning into our disruptive marketing engine to fuel brand awareness across our portfolio, and deepen the connection we have with our community.

We're also reaching new audiences through our unique brand on brand partnerships with like-minded disruptors. 2 years ago, e.l.f. Cosmetics partnered with Liquid Death, one of the fastest-growing beverage brands for a limited edition Corp's paint collection that sold out in 45 minutes. Our community was thirsty for more, so we reunited with Liquid Death to launch a sequel.

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The response from our community to this limited edition Lip Embalm, was phenomenal. Our lip Crypt Vault sold out in 19 minutes. Our campaign drove over 4 billion earned impressions and our date with Death stunt generated over 10 million views. We also saw over 25 million attempts at completing the Liquid Death obstacle course and our e.l.f Up Roblox experience, with an average playtime of over 17 minutes per session. In another first of its kind collaboration, E.l.f. recently joined forces with H&M to reimagine three e.l.f B icons as irresistible fragrances. The collaboration marks a number of firsts.

e.l.f's first global collaboration dropping in 27 countries. e.l.f's first fragrance launch, a category our community has been asking for as well as H&M's first partnership with another beauty brand. The collection launches for a limited time only starting January 29, with a robust activation plan, including outreach to H&M's 150 million loyalty members globally.

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The excitement on our marketing calendar doesn't just stop there. Make sure you tune into Peacock this Sunday, where e.l.f will be debuting a commercial at the big game, while the big game serves as our ignition point. We plan to run our commercial for an additional 8 weeks across a variety of platforms with a total estimated campaign reach of nearly $300 million.

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The strength of our category-leading results and productivity continues to earn our brands space with our global retailers. The e.l.f. brand remains the most productive cosmetics brand, on a dollar per linear foot basis with our largest retail customers globally. We're looking forward to the expansion we have planned for e.l.f in Spring 2026, expanding our space within Ulta Beauty in the U.S. and launching with DM in Germany.

We're leaning the strength of our retail relationships to enhance the global distribution footprint for our brands. In September, rhode launched in retail for the first time with Sephora the world's leading global beauty retailer, achieving the biggest launch into Sephora North America history, 2.5x bigger than any other brand. In November, rhode achieved another record-breaking launch as it expanded with Sephora in the U.K. This was the largest launch in Sephora U.K. history, outperforming the previous record holder by five times. In terms of what's next, we're excited to launch rhode in Australia and New Zealand with Mecca this month to further its global reach.

We're seeing significant pent-up global appetite for rhode. International drives approximately 20% of rhode's DTC sales, while 74% of the brand's social followers are from outside the U.S. Turning to Naturium. When we acquired the brand 2 years ago, it was only available on Target, Amazon, Space NK and its own website. Since then, we've launched Naturium with Ulta Beauty in the U.S., Shoppers Drug Mart in Canada, Boots in the U.K. and Sephora in Australia and New Zealand.

We are pleased by the strong growth in share gains we're seeing across retailers. We'll be expanding Naturium's retail presence to Walmart for the first time this spring, where the brand will be launching in a subset of U.S. stores. With this launch, we're continuing to further Naturium's unwavering commitment to deliver the science of consistent skin care to everyone, everywhere, every day. Looking across our brand portfolio. We're in the early days of our international opportunity we see. For context, international drives approximately 20% of our net sales as compared to legacy peers having over 70% of their sales outside the U.S. In summary, we're excited by the broad-based momentum we're seeing across our brand portfolio and remain confident in our ability to continue to gain share and deliver best-in-class growth in beauty.

I'll now turn the call over to Mandy to talk more about our third quarter results and our raised outlook for fiscal '26.

Thank you, Tarang. Q3 net sales grew 38% year-over-year on top of 31% growth in Q3 of last year. The acquisition of rhode contributed $128 million or approximately 36 percentage points to our Q3 net sales growth. This better-than-expected performance was supported by strong retail sell-throughs in Sephora North America, a record-breaking launch in Sephora U.K. and a strong holiday period on rhodeskin.com. Looking to our organic sales trends. Excluding rhode, our Q3 net sales were up approximately 2% year-over-year. This was lower than anticipated given some softer trends we've seen in the U.K. and Germany, our largest international markets. As we've talked before, we're seeing weaker consumption in the U.K. and recycling our largest international launch to date with Rossmann, Germany.

Outside of those markets, international consumption remained strong. Looking to our geographic regions. Our net sales in the U.S. grew 36% year-over-year, while in Q3, international net sales grew 44%. Pricing and product mix added approximately 38 points to net sales growth, while unit volumes were relatively flat year-over-year. Q3 gross margin of 71% was down approximately 30 basis points compared to prior year and up 200 basis points sequentially versus Q2, in line with our expectations.

The year-over-year decrease was largely driven by tariffs, partially offset by pricing and mix. On an adjusted basis, SG&A as a percentage of sales was 51% in Q3 as compared to 54% in Q3 last year. While we continue to make ongoing investments in our team and infrastructure, this was offset by leverage in our marketing spend on a year-over-year basis, and a timing shift of some of our SG&A expenses into the fourth quarter. Marketing and digital investment for the quarter was 21% of net sales as compared to 27% in Q3 last year. Q3 adjusted EBITDA was $123 million, up 79% versus last year. Adjusted net income was $74 million or $1.24 per diluted share compared to $43 million or $0.74 per diluted share a year ago.

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 $197 million in cash on hand compared to a cash balance of $74 million a year ago. During the quarter, we repurchased approximately $50 million of our outstanding common stock, given the disconnect we see between e.l.f Beauty's market valuation and the strength of our business fundamentals. At quarter end, approximately $400 million remained available for repurchase under our previously authorized repurchase program.

Our liquidity position remains strong with less than 2x net debt to adjusted EBITDA, even after our acquisition of rhode. We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. Now let's turn to our updated outlook for fiscal '26. We are raising our fiscal 2016 outlook on the top and bottom lines, primarily driven by Rhode's outperformance. For the full year, we now expect net sales growth of approximately 22% to 23% year-over-year, up from 18% to 20% previously. We expect rhode to contribute approximately $260 million to $265 million in net sales to fiscal 2026 versus our expectation for $200 million previously. On an annualized basis, our outlook assumes rhode will achieve net sales growth of approximately 70% year-over-year. Looking to the second half, our guidance implies 31% to 33% net sales growth. On an organic basis, excluding rhode, we expect net sales to be up approximately 2%.

Let me walk through the building blocks of our organic sales outlook. We are assuming approximately 6% global consumption growth similar to what we saw in Q3, partially offset by a 4 percentage point headwind from pipeline as we cycle significant retail expansion we had in the second half of last year, including the launch of e.l.f. in about 11,000 Dollar General stores and a 50% space expansion for e.l.f. and Target. This dynamic is driving shipments below consumption in the second half of our fiscal year. Our consumption remains strong. And we believe consumption and market share gains are the best indicators of the underlying health of our business. Over a longer period, shipments tend to even out with consumption. The great news is consumers continue to choose our brands, driving our consistent outperformance relative to category trends.

Turning to adjusted EBITDA. For the full year, we now expect $323 million to $326 million in adjusted EBITDA as compared to our expectation for $302 million to $306 million previously. Largely due to the outperformance we saw in Q3, partly offset by a timing shift of expenses into Q4. Our outlook implies adjusted EBITDA growing 9% to 10% year-over-year and adjusted EBITDA margins of approximately 20%, which we believe is quite strong considering the level of tariffs we faced this year. Looking to the second half, our outlook implies adjusted EBITDA margins of approximately 19%, down approximately 300 basis points versus last year. There are two key factors.

First, marketing. We expect marketing spend to be about 27% of net sales in the second half, up about 200 basis points relative to the 25% of net sales we spent in the second half of last year. We have a number of marketing campaigns planned in Q4, including a new commercial debuting at the big game that Tarang mentioned, an activity we did not participate in last year. Second, within non-marketing SG&A. We have planned investments in two key areas. First, space expansion. The strength of our brands continues to earn us additional space and distribution, which comes with incremental costs related to fixturing and merchandising. Our second investment area is in our team.

We continue to build our team to support the significant white space we see across categories, brands and geographies. In summary, Q3 marked another quarter of industry-leading growth. Our business fundamentals remain strong, and we continue to make progress unlocking the full potential we see for our portfolio of disruptive brands. With that, operator, you may open the call to questions.

[Operator Instructions]. Our first question today comes from Olivia Tong from Raymond James.

So first question is just a better understanding about your approach to spending as well as guidance. Great quarter for December quarter, but it looks like you're expecting EBITDA margins in the low double-digit range for Q4. So obviously, there's a Super Bowl ad. You talked about some of the other spending plans. But I would assume that rhode and FX also provide tailwinds on margins. So just if you could unpack that first. And then second is just around your ability to expand rhode at a faster pace. There's great momentum there. So you talked about Australia upcoming, but there's obviously a lot of world out there, and you already have exposure in Western Europe. So just thinking about the path forward for rhode from here.

Olivia, I'll take the first question, and I'll let Tarang take the second one. So on EBITDA margin, you really have to look at the second half in total. And so when you look at the second half, we're actually out looking around a 19% adjusted EBITDA margin, and that's up from around 17% previously. And so we talked about seeing some cost shift from Q3 into Q4 that was inclusive of marketing, where we had some cost shift and where we've added additional spend, as we've talked about, and you've seen marketing in action with the collaborations that we've done just at the start of 2026 calendar year and with the Super Bowl activation or the big game activation that we have coming this weekend. And so those are some of the areas in addition to kind of team and infrastructure that we've talked about making those investments in. But overall, second half outlook on adjusted EBITDA is better than previously expected.

Olivia, this is Tarang. I'll take the second question on expanding rhode at a faster pace. What I'd tell you is less about expanding rhode at a faster pace, but continuing the excellence of launches that we've had. Rhode growth has been phenomenal outpacing anyone's expectations. And if you look at it, it's really the quality of execution that we've had, Sephora in North America, the biggest launch ever, #1 position there. I look at Sephora U.K., 5x bigger than the next biggest launch. We're tremendously excited.

I think next week, we launched with Mecca in Australia and New Zealand. And so it's more about making sure we're being disciplined in the rollout. Now the great news, as you heard in the prepared remarks, is there's tremendous pent-up demand for rhode. Only 20% of our DTC sales are outside the U.S., yet 74% of our social followers are outside the U.S. So we have very high aspirations in terms of the globalization of rhode over time, but we want to make sure we're doing it with the same level of quality and care that we've done so far in both North America and the U.K. and soon to be Australia and New Zealand.

Great. And then in terms of the core e.l.f brand, can you talk about some of the things that you're planning to do in order to drive incremental growth there. Clearly, you've got some strong lapse that you have to go against, but you talked about some of the additional shelf space. What about international launches further than the ones that you've already announced?

Sure, Olivia. I guess the first thing I'd tell you is we're using the same strategy that's driven 28 consecutive quarters of not only net sales growth or market share gains. I sometimes feel that people don't fully appreciate just how phenomenal the market share gains have been and is consistent, we've gone back as far as we can look, we've not seen another cosmetics brand grow market share for 28 consecutive quarters. And even in Q3, building 130 basis of market share is pretty phenomenal. So I'd say our core proposition, our value proposition, Powerhouse innovation, a disruptive marketing engine many examples that you heard on this call will continue to fuel the brand.

And in terms of continued growth on e.l.f., one of the real strengths that we have is every one of our major retailers we're their most productive brand on a dollar per linear foot basis. And that naturally leads to more space and more support. You're seeing that right now with the rollout that we have at Ulta Beauty in terms of more space. I'm particularly excited about the rollout coming up pretty soon with DM in Germany. It will bring a building on the phenomenal launch we have last year with Rossmann in Germany as well as with Amazon. It really will bring e.l.f to the majority of German consumers.

And I'd say that's probably the last thing I'd say is our ability not only to see the brand in different countries, but then really build out our presence in those countries like we did in Canada, the U.K. Synnove Germany, really, I think there's a ton of potential both in the U.S. as well as internationally.

Our next question comes from Dara Mohsenian from Morgan Stanley.

Tarang, I was hoping you could give us a bit of a state of the union on the base e.l.f cosmetics business in the U.S., just heading into the spring. You're obviously coming off a very large price increase. Maybe looking backwards, how do you think that's been received at the consumer level? Should we expect to see volume pick back up going forward as some of the sticker shock wears off.

And then you have a huge spring innovation pipeline a couple of years back, not quite as strong last year. You mentioned some exciting products today coming up. Just any perspective on the overall innovation pipeline for the spring this year relative to last year? And any additional thoughts around the U.S. in terms of category growth or other important dynamics. And then maybe just second, you spoke about international for Rhode, but can you just give us an update on innovation and portfolio plans around rhode in the U.S. in fiscal '27? Are there any plans to move into additional product subcategories. And just as you think about the brand longer term, how do you look to extend the durability and sustain the momentum that you've seen this year?

Dara, I'd say, first of all, in the state of the e.l.f. brand in the U.S., it's never been healthier. Our consumption is twice the category. We continue to build share as I talked earlier. And one of the things that was -- I was really pleased by was the execution of our price increase. We took a 15% price increase, and we saw single-digit units declines, which is actually quite good, and you're seeing that in the dollars that you -- as we go forward.

Usually, spring is the time that many of our competitors usually take price increases. We're different than a lot of our competitors that historically we've grown through unit volumes. Whereas a lot of our competitors have grown through price increases in AUR. So we do believe our value proposition will continue to get better as time goes on, given that we've already taken our pricing and we live with pricing and the consumers have accepted that. Second, as I think about innovation, you're right, 2024 was the biggest year we ever had in innovation. 2025 was the second biggest year of innovation we had. So it was not as big as 2024, but it still was a good innovation year. So we do have that consistency. We mentioned earlier, 1,800 cosmetics and skin care brands, yet we held in 2025, 4 of the top 10 positions from an innovation standpoint on top of 6 of the top 10 positions the year before. So really have proven strength in innovation and our ability to do so.

I'm particularly excited about the innovation we have this spring. We mentioned our slipstick at $10 versus a prestige item at $48. I look at our Soft Glam Satin Concealer at a jaw dropping price of $5 versus a prestige item at $32. And we have a number of other innovation items that I feel really good about. Now we won't get a full read on those as well. It's promising early days in terms of our own site and places we've launched them really over the next few weeks is when we'll get a much better sense on the spring innovation and how it compares to 2025 as we go forward. We also have very strong innovation plans across our brands.

So you mentioned rhode, rhode, if you look right now, we just launched a face mask as well as a lip mask as a major activation taking place in Montana right now on that. And what we see is just really great consumer acceptance on rhode innovation because it is so curated and thoughtful. The 1 of everything really good works for rhode. Naturium also has a very strong plan as does e.l.f skin and Well People. So innovation is definitely 1 of the key drivers of our business and feel great about that. Last, you asked about the category. I've long been bullish about the beauty category, particularly cosmetics and skin care. And we're seeing some of the healthiest category growth rates we've seen in quite some time. So in this last quarter, the color cosmetics category is up 4%. The skin care category is up 8%. I'm glad that e.l.f. was more than double both of those category growth rates, but it's always great to have a tailwind when it comes from a category standpoint. So not only is the category healthy, but we're particularly well positioned with our value proposition innovation and marketing within that.

Our next question comes from Andrea Teixeira from JPMorgan.

I just wanted to kind of like dig into Tarang, what you just said in terms of innovation, but also from a perspective of categories? I know you have like 50% to 60% in market share for primers. You basically created some of these items, right, in a way or basically brought these items to -- from Prestige into more affordable price point. So I was wondering now you're like the two other very big categories Lip and mascaras, you have been pushing particularly Lip as we think about the consumer being more stretched, maybe she wants to make sure that she has more basic items like lipsticks and mascaras.

So I was wondering, I haven't seen any -- pardon me if I missed anything major in Mascara. So I was hoping to see if you have against the spring and thinking about innovation across where the low-hanging fruits, I'm assuming are still there, right? I mean if you can kind of give us a perspective of how both your innovation team and your retailers are pulling and asking you to bring affordable items within their IO or electronic IO, I should say.

Andrea, so I'll answer that. I'd say, first of all, we feel really great about our innovation plans, as I just talked. And our strategy is really twofold. Number one is really building strength in those segments that we have very large share positions in. We now have 21 segments where we have the #1 or #2 position, and those become really great competitive moats. Be my guest competing against us in primers or any of the categories where we have very strong share positions. And we continue to innovate on those.

The second is conquesting categories where we're under shared. So if I just look relatively within the categories in face, we have a 22% share clear leadership in pace. In lip, we went from almost nowhere to a 13% share and a really strong position in Lip. We continue to innovate in Lip, building on the success we have with Glow Reviver a couple of years ago with our slipstick. I mean it's basically lipstick on a stick, which is a phenomenal form.

And then in Eye we now have -- I mean, literally, it was nowhere to 9% share in Eye and we continue to have innovation across all 3 of those segments, and you'll continue to see more. I think some of our mascara innovation that's coming out is slated closer to the fall time frame that you'll see. So -- and we've been pretty consistent. We've been chipping away kind of mascara share as well as overall eye share and lip share for a while. So I feel good about the innovation strategy, both leveraging the strengths that we have, continue to feed that, including our growing franchises and extending those franchises in other segments. As well as what we have on the innovation pipeline, both in the spring as well as upcoming in the fall as I look at next spring.

So you'll continue to see that work. And then the last area, even though you didn't ask for it is the progress we're making in skin care. We now have 3 of the fastest-growing brands in skin care. I feel really good about the innovation we have on e.l.f skin, the round of innovation we have on Naturium and rhode, as I just mentioned, we really have really stepped up our ability in skin care and also the momentum we're seeing there.

And just to add to that, Andrea, I'll just add on that from -- because you asked about value and bringing that to our retailers. 75% of our portfolio still sits at $10 or less overall. So we are very much focused on bringing that value to our retailers, to our consumers. And Tarang highlighted our soft glam satin concealer, which we're launching at a $5 price point, which is really incredible and a very competitive price point in the category. And so that's always going to continue to be our focus, how do we bring that value to life for our consumers.

Next question comes from Peter Grom from UBS.

Can I just ask on the split of the $128 million of rhode just U.S. versus international? And I just asked this in the context of it would imply that for the base business in the U.S., it would be pretty challenged if the 80-20 rule kind of applied. So just maybe help us understand that. And then just on the 6% consumption that you expect in the back half of the year, maybe could you outline specifically, is that what you expect for 4Q? And can you break that down U.S. versus international?

Peter, so for rhode, overall, look, we're very pleased with rhode's performance, $128 million contribution to the quarter. We haven't broken that out across international in U.S., but the 20% is relatively close, right? We talked about having 20% of their business outside of the U.S. We also talked on the call about seeing softness in some of our key markets on the organic business in the U.K. as we've seen a highly promotional environment that has remained the case throughout the holiday.

And then also in Germany, where we're cycling the launch of Rossmann, Germany. And so when we think about our overall consumption that we're implying, the 6% as what we see for the second half of the year, and that is going to be offset by that 4-point headwind from the pipeline as we talked on the call. So that's kind of how we get to our net sales outlook for the second half overall.

Our next question comes from Sydney Wagner from Jefferies.

Can you help contextualize where you see the largest buckets of share gain opportunity going forward for core e.l.f. Just curious how you think about the level of contribution maybe from mass peers, prestige players or even adjacent noncolor beauty categories. And then if you look across international markets, what are the near and long-term KPIs you're watching most closely to assess brand health and positioning along with innovation traction for core e.l.f?

Hi, Sydney. So on your first question on the share gains, let me back up a little bit and kind of provide perspective. If you think nationally, we're about a 13% share. At Target, our longest-standing national retail customer, we're over 20% of their category. So we see major share gains, including a target going forward. And it is that combination of leveraging where we have strengths I don't think anyone thought we'd have a 22% share in face at some point, but we're not done there with the innovation we have, and we certainly have major opportunity in both Lip and Mascara and the innovation to help conquest those.

The last piece, I brought it up before, but skin care is a major growth vector for us, and we have three brands really to pursue our aspirations in skin care. And then in terms of the key KPIs for international, I think they're very similar to the KPIs we use in the U.S. We really take a look from a consumer standpoint, what's the penetration, what's our ranking amongst the key and most desirable consumer sets. So the strength we have in the U.S. amongst Gen Z, Gen Alpha, and Millennial, we track that, and we're very pleased with what we're seeing in the markets we enter. Second thing we look at is productivity.

What is the productivity in terms of the sales per linear foot that we deliver. And as I mentioned earlier, we're not only the most productive brand here in the U.S., but we are with our major -- major international retailers, Boots and Superdrug being the two biggest Shoppers, Drug Mart, Walmart Canada. And so we look at that. And then I'd say the third are the submetrics by each of our core functional areas. What I'll tell you in summary is we're really pleased overall with our international market.

Mandy talked about, hey, look, we're currently facing some challenges in the U.K. given the promotional environment. but we continue to see very strong build in terms of awareness, overall brand equity ratings. We've heard that some of our competitors are going to be taking pricing in the U.K., so that should help the value proposition we have in the U.K. And in Germany, the real strategy I talked about earlier is really building our presence in the countries that we've already seated. So being able to have Amazon and Rossmann, Germany allows us to put our full marketing model. on in that country once you have real presence.

So I'm particularly excited about what we can do in Germany, the largest market in Europe, and we will continue to see other markets. But all the consumer metrics we're seeing right now are healthy relative to the time that we've entered each of these countries and each of these retailers. So really encouraged about what we can continue to do and not only on e.l.f, but as I mentioned before, across the portfolio, e.l.f color, e.l.f skin, Naturium and rhode, all have major potential. And we're pleased with the results we're seeing behind them.

Our next question comes from Anna Lizzul from Bank of America.

I wanted to follow up on your marketing spend plans in the second half. Just curious what drove the decision this year to go back to a Super Bowl ad after not having one last year. And then if we look at fiscal Q4, of course, acknowledging that you have that Super Bowl ad and some distribution gains, this should be significantly higher marketing spend in fiscal Q3. I wanted to better understand an allocation of what's driving that between these factors.

And I know you talked about your EBITDA margin in the second half overall, now expected to be around 19%, which is better than your expectation for the prior quarter. So I wanted to better understand what changed. You did mention that cost shift from fiscal Q3 into fiscal Q4, but it does look like it's overall lower in the second half than you originally expected. If you could elaborate on that.

Anna sorry about that. We have a little technical difficulty over here. So marketing spend in the second half, yes, we -- overall, for the year, let me take a step back, targeting 24% to 26% for our marketing spend. So that remains unchanged. How the quarters have come together. We did have some timing shifts. You saw the number of campaigns that we've already had as we started Q4. And so that is what's driving some of that marketing spend heavier in Q4.

But really, overall, for the second half, largely the same. On the Super Bowl or the big game, as we have to call it, we did participate in a way last year. It just wasn't through an ad. And this year, we're going to do it through streaming on Peacock, will also be on Univision. And so again, it's not that big, broad national ad. And then we're also going to continue to run that for an additional 8 weeks as we go through. So we'll continue to get some additional hits and eyeballs from that activation as well.

And so feeling really good about the marketing spend. And then on the SG&A or on the adjusted EBITDA for the second half, like I said, from an adjusted EBITDA margin standpoint, we are seeing that better than we previously outlooked. And really, that's why I'm looking at things on a second half basis because we did have some timing shifts on the quarter.

And our next question comes from Bonnie Herzog from Goldman Sachs.

All right. Thank you. Hi, everyone. Actually, I had a question on your full year guidance. You raised your net sales guidance at the midpoint by $46 million, but you now expect rhode sales will be about $60 million to $65 million higher, which does suggest e.l.f brand growth will now be lower. So could you talk to that and maybe what's changed? I guess, is this outlook conservative? Or is there something you're seeing, I don't know, with some of the innovation you've rolled out so far, which maybe gives you a little pause?

Bonnie, I'll take that question. So overall, we did raise our guidance. So we're very pleased be in a position to raise our guidance up to 22% to 23% on the full year. What's implied in that on the e.l.f. brand on an organic basis is around 2% for the second half. And I'll take you back to the math that we talked about on the call. We're seeing about a 6% global consumption rate right now. And so we're using that, and we're saying 4 points come off from a net sales standpoint, given the pipeline that we have to cycle in the base. So what changed to your question is that global consumption rate. We were seeing that consumption rate closer to 8%. And when we came out with our guidance in November and have since seen that come to around 6%. So I would say that would be the key change as we look at the organic business overall.

And of course, if that gets better, there's some upside. And so we're just using kind of what we're currently seeing right now, but we feel good about the fundamentals.

That's right. As Tarang mentioned, for spring resets are still taking place. Some haven't even started yet. And so that will allow us to get a real read on how spring innovation is performing. And so that could be a potential opportunity as we look forward.

Our next question comes from Filippo Falorni from Citi.

So for Q3, can you help us bridge the gap in terms of the organic performance in the U.S. relative to the strong double-digit consumption growth that we see in track channel data, I thought the pipeline cycle was more to Q4. So maybe was there a bigger impact in Q3 than previously expected that drove that gap? And then looking forward into Q4, can you give us a sense of what you're expecting in terms of U.S. consumption within that 6% global consumption? Should we expect U.S. to be above that, given some of the international weakness that you mentioned? And when do you think we should see in your consumption data, some of the benefits from the innovation and the shelf space gains that you mentioned earlier in the call?

Hi, Filippo. So for Q3, we talked about we're looking at things in the second half in aggregate, which I think is a better way to look at things because in Q3, we did have some timing of shipment shift over into Q4. And so that's why I keep anchoring back to the second half. Originally, we had expected Q4 could be a negative quarter for us. But now we're outlooking that to be flat to up 2% would be implied by our guidance. So that's a good thing, but that does imply some shipments shifted from Q3 into Q4.

And in addition, as I just spoke about to Bonnie's question on the global consumption rate, we're seeing that at around 6% versus 8% previously. We haven't broken out what to expect from a U.S. versus international. In fact, we really want to anchor back to the total level on some of these numbers because there are so many ins and outs with looking at U.S. and international rhode versus organic, we really want to anchor back to what we're seeing overall as a total company, which is very strong momentum.

We just reported a 38% net sales growth quarter and our outlooking for the second half, 31% to 33% net sales growth, which is quite strong in this backdrop.

our next question comes from...

Sorry, I just wanted to finish on [indiscernible] question on consumption and innovation and when do you start to see those things marry up or see any benefit from those. And the spring innovation, like we were saying, resets are starting now. Some haven't started yet. So I think by the time you get to the beginning of March, you should start to see some of that out in the consumption data as we go through.

And our next question comes from Anna Andreeva from Piper Sandler.

We have a couple. You guys talked about softness in the U.K. for e.l.f. organic. Can you talk about -- did that get worse this quarter? I think that's your biggest international market. So could you talk about some of the initiatives there to return back to growth? And then just a follow-up on rhode. Congrats. I mean, really great results. And understanding some of the investment is pretty necessary and the pipeline of innovation there is different than at core. But can you talk about where are you in the investment cycle at Rhode? Should we think that's something that's continuing into '27 until you've kind of lapped owning the business in the back half?

Anna, this is Tarang. So starting with softness in the U.K., we have seen the U.K. have a higher promotional environment than has been normal. And so that certainly has impacted us. In terms of our strategy, I think it's threefold. One is reinforce our value proposition. As I mentioned earlier, a number of our competitors have announced they typically take pricing in the spring. So we'll see how that pricing plays out in terms of how that helps our overall value proposition.

Second, we have a new leader for EMEA, a very experienced GM. And the focus really is building out depth in our existing markets. And so there's -- it's been quite a while since we've done awareness advertising in the U.K., some other levers within our overall marketing engine that will apply. And certainly, innovation always plays every single geography. So just as we see promising signs in our spring innovation in 2025, we believe that will play out in our international markets, including the U.K. So there'll be, I'd say, the 3 things: greater focus on the market, new leadership and then being able to really leverage both our innovation and marketing.

We are confident of our position in the U.K. longer term. If I look at over the last, as I mentioned earlier, the last 5-year CAGR for international at 55%, 60% of that was driven by the U.K. and Canada. So we still have much further to go in the U.K. and in Canada, where we continue to have momentum. And then on your second question in terms of rhode, I would say where we are in the investment pipeline. First of all, the team has done a phenomenal job being able to keep up with the tremendous demand that we're seeing for rhode. We're continuing to work with Sephora to make sure that in-stocks are right. I mean the brand is just outsold anything anyone is expecting that the team has done really a herculean job really keeping up from a supply standpoint and making the right investments.

And so we have good capacity to be able to continue to do that. It's more a forecasting thing relative to the demand we saw, and we'll get better there. In terms of other investments we're making, we mentioned when we acquired the brand, one of the early investments we made is field sales support for Sephora and really making sure that, that launch went off without a hitch and that was one. Over time, we talked also during the time of acquisition, we would want to invest more in marketing and the team. We continue to build out the team, particularly given our global aspirations for the brand. And so I feel good in terms of where we are in the cadence of both the rollout as well as the investments we're making. And in some respects, it's very much pay as you go. I mean the rhode margins are pretty phenomenal, and we'll continue to invest in it. As we mentioned during acquisition. I don't know, Mandy, if you have anything else to add there?

That's good.

Our next question comes from Susan Anderson from Canaccord Genuity.

I guess maybe can you give us an update just on tariffs when you'll start to cycle the impact there? And then just curious, have you been able to fully mitigate the tariff impact with the price increase and then other efforts? And then also maybe if you could talk about -- I think on the last call, you talked about holding back some inventory to some retailers that haven't changed their pricing.

I guess I assume that's been resolved and you're shipping to them now, but I guess I was curious if there was any catch-up in the quarter there as well.

Yes. Hi, Susan. So on the tariff front, it's been pretty quiet since the November 10 change in tariffs. So the tariff rate is now at 45%. As you know, it has been as high as 170% earlier in the fiscal year. And so we really haven't had any changes since that point in time. And if it remains at 45%, that becomes a little bit of a tailwind for us as we get into fiscal '27 given that we retain those higher rates as we started the year. And so that's the latest on the tariff front. On a shipment standpoint, yes, and pricing, that was fully resolved. That was fully resolved as we exited the second quarter. And so no further update on that front.

Our next question comes from Steve Powers from Deutsche Bank.

Mandy, one of the areas you mentioned as a driver of higher SG&A spending in the fourth quarter is spending on that incremental space expansion. I just wanted to dig in there a little bit just opposed against the 4-point top line shipment headwinds you framed for the back half and in the fourth quarter. I guess as you step up that spending on expanded space, is the implication but that's in -- that 4-point headwind is net of that incremental space expansion. Is the implication alternatively that you're going to spend on organic space expansion, but you won't realize any revenue gains on that until we get into fiscal '27 beyond the fourth quarter? Or what you're saying is you're spending more on space expansion behind rhode, which would be inorganic. Where is that spending? And when does the return on that spending likely to manifest on the top line, I guess, is my ultimate question.

Yes. So maybe let me start with the 4-point headwind. That is a net number. So that is net of any new space expansion, that 4 is the overall impact. What we're not -- what we're cycling plus any news that we have. And so when we talk about space spend on space expansion, it really comes in two varieties. One is on incremental space that we're currently getting. So that would include rhode and the space expansion that we talked about with Ulta and different things that we all noted on the call. And then there's also just refreshed spending that happens on space that you have an existing visual merchandising, fixturing, display costs that happened with the spring resets. And so all of that is going to kind of fall into that space spend that we're covering with that comment.

And I'd add, historically, the payout has been really good. If you think of where -- look, the Target example of we started at 4 feet, we're now at 20 feet at Target, #1 position with over 20% of the category. Those incremental expenses over the years from a retailer standpoint have paid out really well. I can point the same across each of our customers. Having said that, we do believe there's an opportunity to be more efficient with some of that spend. I think particularly given how much expansion we've had, a lot of times when you're kind of trying to meet an expansion goal and kind of sprinting towards it, that spend could be higher than I think what we could optimize in the U.S., particularly internationally. I think some of the international space expansion has come at a higher cost. And as we look at it, we believe that's somewhere we can get a little bit more efficient as we go forward regardless of kind of the overall brand.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor over to Tarang Amin for any closing remarks.

Well, thank you for joining us today. As I said, I'm really proud of the incredible team we have at e.l.f for delivering another quarter of consistent category-leading growth. We look forward to seeing some of you at the CAGNY conference in a few weeks since speaking with you in May, when we'll discuss our fourth quarter and full year results. Thank you, and be well.

With that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

All right. Good morning, everyone. Just before we begin, I have to note for important disclosures, please see the Morgan Stanley research website at www.morganstanley.com, research disclosures and contact your Morgan Stanley representative with any questions.

I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. We're very pleased to welcome back e.l.f.'s Chairman and CEO, Tarang Amin; and Senior VP and CFO, Mandy Fields. Thank you both for joining us today.

Thanks for having us.

Thanks for having us.

So maybe we can start a bit short term, just with the recent outlook for the back half of the fiscal year. There's a lot of different factors from a revenue standpoint that are driving the growth you expect, fairly muted sort of implied in that low to mid-single-digit range. And the underlying retail takeaway, if you look at scanner data is running ahead of that. Obviously, there's some sort of some shipment comparison issues when you look to last year. So maybe you can just unpack things for us a little bit in the back half of the year, how we should piece all those things together? And what's sort of an underlying run rate when you think about the business leaving this year?

Yes, absolutely. So when we look at the second half, I know there's been a lot of focus on the organic business. So we outlooked 2% to 5% growth on an organic basis in the second half. And maybe let me just break down the building blocks of how we got to that number. So right now, what we're seeing in consumption in the U.S. is about a 12% consumption rate, which is fantastic, shows us that consumers continue to choose e.l.f. In fact, we picked up another 90 basis points of market share in October. So continue to do very well on that front.

I think 2 other things to keep in mind are, one, on the international front, we've talked about seeing some softness in the U.K. and as we cycle the launch of Rossmann, Germany. So we're seeing our international consumption run down about a mid-single digit. And so when we look at global consumption, we're running about 8%. And so from that 8% global consumption, we talked about the pipeline impact to the second half. And so we've quantified that back half impact at about 4 points of impact to the second half. And so that really gets you somewhere around the midpoint of that 2% to 5% range as you break that down. And so that's what we really see for the second half of the year. Again, strong consumption, but that pipeline impact is pretty large at about 4 points.

Okay. That's very helpful. Now I'll get greedy, and I'll ask you about Q3 versus Q4. And just how are you thinking about the cadence and pace of organic sales growth ex-rhode in fiscal Q3 and Q4?

Yes. So on an organic basis, when we think about -- again, on that 2% to 5% that we outlooked on the November call, we would expect Q3 to be at or above that range from a quarterly perspective. And Q4, since those shipments were primarily concentrated to Q4 last year. If you take that 4-point impact and apply it just to Q4, that could be a double-digit impact to our net sales. And so you could possibly see Q4 below that 2% to 5% range. In fact, you could see Q4 dip negative in that quarter just given that pipeline impact. But again, really get back to that 2% to 5% for the second half in total, better in Q3, you're going to have more of that impact in Q4.

Okay. Great. And then just as you think about the international business, maybe some perspective on what we're seeing there from a consumption standpoint, what you're expecting going forward and also just pipeline issues there and comparisons on the international business.

So on international, as Mandy said, in Q3 quarter-to-date, we're seeing consumption down mid-single digits, and it's really due to 2 factors. One, we're seeing some softness in the U.K. The promotional environment is particularly high right now in the U.K. Not worried long term because those promotions can't sustain. But right now, we're definitely seeing the impact of that. And second, we are lapping the biggest launch we've ever had internationally with our launch in Rossmann in Germany. So those 2 factors are relating to the consumption growth. Taking a step back, if you look at the last 5 years, our CAGR internationally in terms of growth has been 55%, quite strong. Now good news is that CAGR of international growth is about 60% of that growth really came from our first 2 international markets, Canada and the U.K., where we have real presence.

I'm excited as we build more presence into Germany with our upcoming launch with DM in Germany gives us, again, over 70% ACV in that market. So our ability is similar to Canada and U.K. to kind of build real presence and continue to do that. So we still see a massive opportunity internationally. I think the thing for us is to better balance the focus on our existing markets where we've gotten the majority of our growth, while we continue to open up new doors. There isn't a retailer in the world that doesn't want e.l.f. right now. And so for us, it's always about disciplined sequencing of it, but we still see a massive opportunity internationally.

Okay. And can you talk a little bit about country dynamics internationally right now? Is it more just the U.K.? Are there other markets that are showing weakness?

I think it's -- for us, it's more in the U.K. right now. That's where you're seeing greater promotional activity. Germany is just related to our Rossmann launch. Our other countries are actually doing quite well in the countries that we've entered. And we'll continue to follow that strategy of establish the brand with a leading retailer in a country and then expand from there, just like we did in the U.K. with starting with Superdrug and getting into boots in Canada, starting with Walmart, getting the Shoppers Drug Mart. In Germany, starting with Rossmann, Germany and now going into DM. We'll continue to follow that strategy while we continue to [indiscernible] in this quarter, we're also launching in Rossmann, in Poland. I just came back in the last couple of weeks from a visit to Dubai, where we just launched the e.l.f. brand with Sephora across the GCC. So we continue to see strong appetite for e.l.f. And again, for us, it's always about that disciplined sequencing of concentrating on the big markets that we have while we continue to establish new ones.

Okay. That's helpful. Maybe to finish off this topic, just as we think about fiscal '27, any issues in terms of shipments versus retail sales leaving '26. We've seen some of that in the back half of the year. Does any of that linger as we look forward to next year? Any sort of abnormal factors as we think about building our models for fiscal '27?

Well, what we pick up from a space standpoint and how that varies will vary quarter-to-quarter and year-to-year. I think the more important thing to keep focused on is the consumption. And like I said, we're continuing to see very strong consumption running about 12% quarter-to-date. And so very encouraged by that.

Okay. And Tarang, maybe you can just take a step back, right? We've talked about the business in the U.S. and internationally, the volatility. As you think about the quality of growth here, you've implemented a large price increase in the U.S. also. So give us your view on the state of the business here, both in terms of e.l.f.'s market share and also what you're seeing from a category growth perspective. Maybe we'll stick to the U.S. and U.K.

Yes. So I continue to be bullish on the category. It's an important category. We've seen -- I mean, I think just in the last 4 weeks alone, color cosmetics in the U.S. is up 7%. So pretty strong growth, I think about 2% to 3% over even a longer period of time. So it's a good category just because it's so important to consumers. And within that, e.l.f. continues to gain share. We've gained share now 27 consecutive quarters, as Mandy said, 90 basis points just in the last month alone. And we have still a massive share opportunity. Starting with color cosmetics. Our #1 retailer is Target, where we have more than 20% of their category. Nationally, we're about a 13% share.

As other retailers replicate what Target has been able to do in terms of space and really focusing on e.l.f., we believe there's a massive opportunity to almost double our market share in Color Cosmetics. The opportunity in skin care is perhaps even bigger. We now are a top 10 brand with e.l.f. SKIN. We've got 3 of the fastest-growing skin care brands in e.l.f. SKIN, Naturium and rhode. So we have a massive opportunity there as well. And so we feel between our opportunity in color cosmetics, skin care and international, which I just talked, the long-term prognosis is actually quite strong in terms of the business. And you don't have to look any further than look at our history over the last 5, 6 years. You can see the consistency of that growth over time.

Okay. And in the U.S., we've heard a lot at this conference, it's a difficult consumer environment. Do you think you're seeing any impact on your business from macros? In theory, there could be some benefit given the value that you offer as a brand, but also it's a category that could be susceptible to pullbacks a little bit in spend. So what do you think you're seeing from a consumer standpoint?

Yes. So I mean I think similar to most people, we're watching the consumer very carefully, right? Obviously, a lot of uncertainty, a lot of worry on inflation, on tariffs. overall macroeconomic environment. The good news is, given our value proposition, we're well positioned even in that market because as consumers get choosy, we continue to see them choose e.l.f.. And so from that standpoint, I think whether -- and as I go through a longer track of time, whether it was the pandemic, post-pandemic period after that, e.l.f. has continued to outperform the category by a pretty wide margin, and we'd expect to continue to do that.

Okay. Maybe some perspective on the long term and market share opportunity over time. I'll pivot off your comment on Target and getting to above 20% share there. What do you see as an ultimate level you think e.l.f. can get to reasonably looking out as you think about your business from a long-term perspective in the U.S.

Yes. So from a long-term perspective, I'd say, while Target is our #1 customer, the reason why they are is they have like a 5-year head start on everyone else. And the good news is I look at each of our retailers, we see them on the same trajectory, particularly as we replicate a lot of the strategies that Target has done. And even for Target, over 20% is not their endpoint. They have declared they'd like to see e.l.f. be -- we're about $0.5 billion of retail sales for them right now. They'd like to see e.l.f. be their first $1 billion beauty brand. And to that end, they expanded our space from 13 feet to 20 feet. They continue to provide a lot of support, multiple points of disruption. And those same strategies, I think, are starting to being applied by the customers.

We announced recently that Ulta Beauty is expanding space this spring on e.l.f. We're one of their top brands. Walmart has been testing what they call their highest vision sets of e.l.f., and they've tested extremely well. It's part of their overall program to elevate beauty within e.l.f. where e.l.f. anchors the entire department you see. So we see across every one of our retail massive opportunity. I can't tell you what the endpoint is in terms of share. I just know we have a lot more to get.

Right. Okay. And clearly, one of the big growth drivers for your business over the last few years has been those shelf space gains that you mentioned. Can you level set us on what we should expect going forward over the next couple of years, particularly after taking a large price increase, unit velocity has dropped off a bit, but appears to be manageable elasticity so far. You've had some big wins in the last year or two from a distribution standpoint. So how are you thinking about the shelf space opportunity looking out over the next year or two?

We still see a massive opportunity from shelf space. And the good news with us is it's been pretty consistent over the years. You've seen us pick up new shelf space, new distribution year after year, going back up to 12 years. And so I'd say the #1 driver of being able to pick up that shelf space is what's your productivity. And we remain the most productive brand any of our retailers would carry on a dollar per linear foot basis, so that naturally leads them to allocate more space to e.l.f. And then our ability to optimize that space over time through our cycles. We have a great model where we proactively change out almost 20% of the assortment each year based on the insights we're getting from our digital business, our ability to be able to continue to drive higher dollar per unit per shelf per linear foot space will continue to gain us more space, like I just mentioned. Now there are some years that you'll pick up more space, more distribution. We talked the pipeline issue that we're having in Q4, obviously, picking up 11,000 Dollar General stores in that period as well as 7 incremental feet at Target. So you might see a different cadence. But overall, we're highly confident in terms of our ability to continue to pick up space just given the strong productivity we have.

Right. And give us a bit of window or insight into your conversations with retailers? And how do you go about convincing them for more shelf space? You've obviously had a great track record over time. So the numbers speak for themselves. Is it a matter of pacing yourself? Are you -- how do those conversations play out?

The great news for us is we don't have to actually convince any of our retailers that we need more space. They can look at their own numbers. They see the productivity the brand delivers. They see the consumers that we bring into their stores. We're by far the #1 brand amongst Gen Z, Gen Alpha and millennials, and we continue to pick up more in Gen X as well as our innovation engine. They have -- we have the innovation that people are looking for. So retailers are already convinced. So it really becomes a matter of a retailer's own pacing of when are they hitting stores, when are they doing resets and how that goes. And again, we've had a pretty good track record.

I think 12 years ago, when I started, I think we were less than 4 feet at Target. We're now at 20 feet at Target. We weren't hardly even in Walmart. We now have about 12 feet in Walmart, much further to go within Walmart, as I mentioned, with the highest vision set. Ulta, we weren't even in. We're now 12 feet. They're expanding more space. So I think that will naturally come given the strength of the brand. We continue to lead the category growth and have the right consumer profile, the right level of innovation. And that's the part that actually drives the space gains. So then it's really just a matter of sequencing.

Right. Okay. We've seen you expand your retail footprint in Dollar General. You recently obviously completed a significant deal in rhode, which we'll get to. But that's also led to some concern that maybe there's less base business growth opportunity. So I just wanted to give you a chance to address that, how you think about it. We've seen multiple compression. You're not unique recently in CPG. Obviously, it's happened across the group. But would just love to get your view of the long-term opportunity from here, how e.l.f.'s management team is viewing sort of the value of the stock from a share repurchase standpoint or even from a personal standpoint.

So I'll start by saying there's a fundamental disconnect between where our stock is today and the absolute fundamentals of the business and long-term potential, particularly given how much white space we have in color cosmetics, skin care and internationally. I'd also tell you, I don't think the market is properly valuing the core areas of competitive advantage we have. The value proposition, our power of innovation and marketing engine all continue to work. So I'd say long term -- and I've been in the chair for more than 12 years, I've seen stock go from $17 up to $30, down to $8 up to $30 again, down to $8, up to $200 and some. And so there has been volatility, but those who actually can take a longer-term view and see what we've actually been able to deliver consistently over time as well as how much more white space we have. And then you add on top of that, the strength of our brand portfolio. e.l.f. Color Cosmetics, we've talked a lot about. e.l.f. SKIN is one of the fast-growing skin care brands.

Naturium is one of the fastest-growing skin care brands, clinically effective biocompatible, ton of opportunity, white space lies and rhode has been just absolutely phenomenal. So I'm actually more confident than I've ever been in terms of the long-term potential of the business, mainly because of the strength of that core portfolio and how much white space we have.

Great. And Mandy, maybe how do you think about putting dollars to work from a repurchase perspective?

Yes. So we just recently repurchased $50 million of stock after we saw the pullback post earnings. And we will do that as a signal to show that we believe, as Tarang said, we believe there's a disconnect out there based on what we've delivered and what we expect to deliver in the future and where the market is valuing us at this point. And so we were able to do that, and we will do that from time to time when we see those disconnects.

Okay. Great. Innovation has obviously been a key driver of the business historically. Can you talk about your innovation plans in the remainder of this year? And as you look out to next year, you did bring some fall innovation forward earlier in the year and into the spring. So it would be helpful just to hear what's coming up in your pipeline. Do you have holy grails coming up? How excited are you about that forward pipeline relative to recent history?

Yes. Our innovation is one of the key areas of strength for the company. If you take a look at our business, we have the #1 or #2 position in 20 segments of the color cosmetics market, makes up 80% of our sales. If you look at how we got to #1 or #2 in those segments, it's by launching these holy grail innovations, taking inspiration from prestige or our community, putting our e.l.f. Twist on and bringing those incredible value. And so that strategy very much stays intact. We feel really good about our spring innovation coming up. In fact, you'll be able to see a lot of it in the next few weeks as we start putting it online and some of the retailers start putting up their newness end caps as we take a look.

And I'd say 2 things with our innovation coming up that I feel particularly good about. One, we have quite a few of these holy grails, these products that consumers naturally have pent-up demand with having an incredible value, particularly in this environment, we think, is a winning strategy. And then also making important value statements with some of our innovation. Again, in this environment, we think that's going to be really important. So I'm feeling really great about our innovation.

And our innovation has been consistently strong over the years. I think in spring of '25, it was the second highest class of innovation we had. Of course, it couldn't lap spring of '24, which was our viral lip oils and a number of things we had there. But if I look even at fall of '25, it's much higher than fall of '24. So we feel good about the momentum on innovation and really looking forward to the spring innovation coming up.

Can you discuss what you think is unique about your innovation process? You've had a lot more success than other companies in the space, and there's certainly been some efforts to copy your success. So help us understand why you've been able to stay ahead of the pack from an innovation standpoint.

Yes. I mean, look, the long consumer career back when I was at P&G and Clorox, you have very like insight-driven and this is what you think the trend is going to be and here's what we're going to develop and you launch big innovation and you find out less than 50% success rate on most innovation. Our model is very different. We take insights from our community. Our team reflects the community we serve. We're very much in tune to our community. And our community will come to us and tell us.

I mean my CMO sometimes [indiscernible] me by putting me on TikTok live and the community is not -- and she'll basically say, hey, you got the big boss, tell him what you want. Community is not shy. There was an example last year, they said, hey, there's this prestige brand. They have these bronzing drops. We can't afford them. That's $38. Help us out. And I look at the chat and say, all right, you want bronzing drops. And they're like, no, no, [indiscernible], we want them now. And I'll leave that call traumatized, call my head of R&D. We have a 3-year pipeline on our innovation. And I say, please tell me if we have bronzing drops in our pipeline. And she'd say, yes, we do. I'm like, when are they coming up? It's like 18 months. I'm like, oh, no, no, I can't be yelled up by our community again. We were able to launch them 6 months later.

So I think the uniqueness of our innovation model is a few things. One is taking those insights directly from our community in terms of what do they want. You already know there's pent-up demand because you're getting those signals. Two, our ability to put a unique e.l.f. twist on where we don't just replicate the product. We always try to make it better. In fact, our quality scores have gone up every single year for the last 10 years. It's prestige quality at these incredible prices. And then our third thing is, I think, the breadth of our innovation across color cosmetics, each of the segments we're strong in, where we have the #1 position in, but also conquest categories. We're #1 in face with 22% share, #2 in the lip category now going from nowhere to #2. Eye, we're #9. We still have a long way to go there. And so our ability to both take the strengths that we have from our community as well as conquest new categories as well as skin care, I think, is what really separates us and being able to do that consistently season after season and throughout the year and applying that model to our other brands as well.

Great. Maybe we can turn to rhode. I know it's a subject you are really excited about. Just starting with the big picture, many celebrity-led brands have struggled over time with staying power. So why is this different?

Yes. No, it's completely different. In fact, we stayed away from a lot of celebrity brands because of that. What I would tell you is Hailey Bieber is more than a celebrity. She's one of the most thoughtful founders I've ever met, incredible instincts, a beautiful aesthetic and quite disciplined in terms of how they've built that brand. I mean we've seen very -- I've never seen a brand that went from 0 to $212 million of net sales, DTC only with just 10 products. And as a testament to our belief in rhode as well as Sephora's, the Sephora North American launch of rhode was 2.5x bigger than they've ever seen in any launch in their history. The U.K., we had even a higher multiple in terms of any launch they saw in their history. And so the beauty of rhode is just how thoughtfully engineered that brand has been and how curated it is.

Hailey's vision of I want one of everything really good, the curated product assortment, the aesthetics. But probably most importantly, and what really appealed to us is a very similar philosophy in terms of how you engage the community. I mean the consumer [indiscernible] for rhode is unlike anything I've seen. People willing to wait out 14 hours overnight for an event where Hailey is not even at, talks to how much people really love this brand. And again, you don't have to look any further than this 4 results, and we're only in North America and the U.K., massive global opportunity for that and our ability to continue to help rhode grow.

Right. Similar philosophy, but what can e.l.f. bring to rhode? And as rhode has come into your organization, what have you learned from them so far?

So I think, first of all, our innovation process -- I mean, our acquisition process is different. Not only has a very high bar where we looked at a lot of different things, but only Naturium and rhode really were the ones we executed on because they fit our vision. But our model, we never do any synergy math. It's all about growth and what we see in the potential of the business going forward. And it's more of a pull model. We never direct within these businesses what they need. So in rhode's case, for example, when we looked at them from a diligence standpoint, we said, hey, you don't actually have a field sales support for Sephora and you're about to do a big launch. And they said, can you help us out there? Before we even close, we built them out of field sales team.

Obviously, our expertise with retail and being able to manage those customer relationships is an area. I'd say we have massive capability from an innovation and marketing standpoint that can further help rhode. And in turn, rhode has helped us. Their engagement model is similar to e.l.f. but different. So we're learning things from that, letting the team continue to run. But again, it's a pull model. It's very much what we use in Naturium. We've seen very strong growth with Naturium and a very similar approach. What do you need? Naturium had a long list. We need quality, we need regulatory. We don't want to manage our co-pack network. We don't know how to get into Ulta. There's a lot there that we say, hey, we know how to do. And at the same time, there's a lot we've learned from rhode on even e.l.f. SKIN that we've been able to apply. So it's actually a really good acquisition model because we really continue to follow the founders dream. I often say like we're founders -- founder's dream because of -- is we don't -- we continue to nurture what their vision is, bring significant capabilities, but let them continue to drive the remarkable growth they continue to.

Great. And you mentioned that the Sephora launch was 2.5x the next largest launch, obviously, very impressive. Can you just spend a bit of time discussing how the business has trended since then? Any color on more recent trends, particularly with the birthday edit line out recently? Just give us a bit of update. And then longer term, as you think about what you're going to do with this business, can you discuss your innovation plans and plans to expand the business geographically, internationally? And any thoughts around additional U.S. retail partners over time? I know it's early, but any general thoughts looking out?

So the business continues to perform extremely well, not only at launch, but as we continue to see a build since that launch, we've seen very strong growth rates, very strong productivity. I think they're the #1 skin care brand now at Sephora already. And so we continue to see incredible strength. In terms of the future, we will -- I think there's a few areas that we'll continue to focus on. One, as you mentioned on innovation. The innovation approach on rhode is not to overproliferate SKUs, but to be very thoughtful in the SKUs or the items that really fit kind of the lifestyle brand that Hailey has created. So we have a rich pipeline in skin care. You'll be seeing some more things come out here in the next couple of months. And so we'll continue to feed the innovation pipeline. Obviously, we bring a lot to that party.

Second is in marketing. rhode has pretty low aided awareness or actually unaided awareness. And if you take a look at what e.l.f. has been able to do, growing our unaided awareness from 13% to 45% in just a few years, we believe we can do the same with rhode in terms of bringing even more consumers into the franchise. And the third area, I would say, is in our ability to expand the distribution footprint. Our primary partner is Sephora. We are in the exclusivity period with Sephora. They're a terrific partner and helping nurture a brand and continue to grow it. We're only in North America and the U.K. That means the rest of Sephora, the largest global beauty retailer is still open to us, and there's a lot of appetite for that.

And then after that, we'll take a look based on what Hailey is interested and where the business is. But right now, I'd say Sephora would be our main focus from a distribution standpoint, then we'll see from there. But I got to tell you, there hasn't -- since we closed this transaction, there hasn't been a retailer we work with that hasn't called me and said, oh my God, when can we get rhode? And I'm you're going to have to be patient. We have a pretty good plot right now.

Right. Okay. And help us dimensionalize where the brand is going over the next few years from a product category standpoint. It's a pretty narrow footprint today. So just how do you think through that strategically as you look out over the next few years?

Well, we see rhode as being very elastic because it's based on Hailey's lifestyle, but she's very thoughtful, as I mentioned, on the curated lifestyle. So I'd say the primary focus for us is skin care. We're seeing tremendous growth in skin. We've also seen great success in hybrid color, and there's more opportunities there as well as accessories. iPhone cases, some of the other accessory items have done well. You'll see additional categories over time. But right now, I would say those first 3 are the primary focus.

Yes. And I would just add to that, that the philosophy behind rhode is one of everything really good. And so you're not going to see this massive SKU proliferation. It's really focused on having the best products possible out there.

Okay. Great. And obviously, very high margins in the business. A retail launch naturally compresses that and you're going after the marketing opportunity, as you mentioned. So just how should we think about the margin contribution from rhode in the short term over the next year or so as you spend aggressively? Will it still have a margin structure that's well above base e.l.f.? Is there a period where it's a bit depressed? How do you think about that?

Yes. We're -- the margin structure that rhode has is pretty incredible. Even with the investments that we want to make behind the brand, we still believe that, that brand can have margins that are above e.l.f. total margins. And so I'm very pleased with what we see from that structure.

Okay. And Tarang, maybe you can talk about skin care opportunity in general, right? You have the Naturium business also. e.l.f. has made some inroads there. So just how you think about the overall ecosystem of your brands within skin care and the opportunity there over time?

Yes. So I mean, if you look at the global market, global skin care is much larger than global color cosmetics. So there's a massive opportunity on skin care. I feel great about our portfolio. e.l.f. SKIN takes a similar strategy as e.l.f. color cosmetics. We take inspiration from prestige, what our community wants, put our e.l.f. twist and introduce an extraordinary value. It's one of the reasons why we've been able to build these growing franchises with our Holy Hydration! line, our Suntouchable! line, bronzing drops. We continue to see great momentum on e.l.f. SKIN.

Naturium is complementary to e.l.f. SKIN in that it's clinically effective biocompatible instead of the $9 average unit retail on e.l.f. SKIN, it's about an $18 average unit retail. It is an incredible brand in terms of both facial skin care as well as body and being able to play in that segment as well. And we're seeing great resonance with Naturium. We just launched it in Sephora, Australia, was a terrific launch. We're going to continue to build the footprint. We've expanded space in boots.

The Ulta launch that we did this past year has gone extremely well. And so we see plenty of runway for Naturium. And then rhode, like I say, we said for this in 2026, it's going to be about $300 million on a run rate up 40%, and we're still scratching the surface on that brand even with all the success it's had. So we see skin as one of the key drivers of the business over the coming years for many years, with so much opportunity.

Okay. Maybe, Mandy, we can touch on capital allocation. We talked about the repurchases recently, base business growth you're excited about versus M&A and how you think about your capital allocation here, given we've had a number of circumstances change in recent quarters.

Yes. So we're very much focused on the core and our existing portfolio of brands. Now that we have rhode integrated and part of the e.l.f. portfolio, we got a lot to focus on there. I would say we've been focused on team and infrastructure. Those have been the primary investments that we've made over these last few years, whether that be behind international or other opportunities that we see, skin care, things of that nature and just making sure that we have the right team in place to support that. And so those are going to continue to be our priorities.

Obviously, this year, we also had our ERP transition. That was a big use of capital for this past year. And so we are just continuing to make sure that we have the infrastructure back of house in order as we continue to scale this company.

And I'd add to it on the M&A front, we're in a great position. We have such strong organic growth in our existing portfolio, such great opportunity. It puts a very high bar on M&A. But we also have a very strong balance sheet. Even after the rhode acquisition, our net debt-to-EBITDA ratio is less than 2 turns. And so if we saw another Naturium or another rhode, we have the capacity or ability to do that, but our main focus is on realizing the strong organic growth of our existing portfolio. It's a very strong portfolio, but it's a great position to be in where you can really get the cream of what's in the category and use that to further enhance.

Great. Mandy, maybe we can turn to the SG&A line and split it into non-marketing and marketing. Your guidance for the back half implies a pretty big jump in SG&A, 35%, 40% year-over-year. Obviously, some of that's rhode. But if we assume that's 25%, 30%, there's still a pretty big increase in that base business, non-marketing SG&A. Help us understand where that's going to, what kind of ROI you're getting behind it? Is that sort of required to drive growth in this environment? Or does it position you for forward growth with a lot of investment over the next couple of quarters here? How do you think about that?

Maybe let me take a step back and just give the overarching perspective on the second half. So second half, what we outlooked on our November call was 24% to 27% growth -- top line growth in the second half. We started this conversation with focusing on organic growth of 2% to 5% in the second half. But on a total company standpoint, we expect 24% to 27% top line growth, which we believe is incredibly strong. We just talked about rhode. Rhode is a major contributor to that growth. From an expense standpoint, into the second half, we did have marketing spend shift. So we quantified that at like 500 to 600 basis points of incremental that we'd be picking up in the second half, just given we didn't spend at the levels that we had targeted in the first half of the year.

We're still targeting 24% to 26% as our percent of net sales on marketing for this year. It's just going to be weighted more to the second half. The other areas that we have invested behind, again, go back to that team and infrastructure piece that I talked about, making sure that we have the right team in place, adding team members, particularly on the international side of the house. And then also, if we think about infrastructure and the space gains that we've gotten, the visual merchandising and fixturing that come along with that have also been a big source of spend for us this year.

Okay. And I'm assuming some of that continues into the first half of next year, do you annualize it? And then how do you think about the payback from that in terms of the ROI? Is it, again, sort of required to drive growth in this environment? Is it more it gives you incremental opportunities as you look out?

Yes. So from a marketing standpoint, we continue to see ROIs well above category benchmarks. And so that would tell us that we should continue to invest behind our marketing and digital. We're seeing strong returns there. I would say on non-marketing SG&A, we do think there's a path back to getting leverage in that spend, and we'll have to see where we get to as we turn the page to fiscal '27.

Okay. That's helpful. Tarang, we're coming off a period with a very large percentage price increase. So I'd just love to get your perspective on how the business is performing post that, brand equity, what you're seeing from a competitive standpoint, what you're hearing from retailers post such a large increase.

So we're pleased with our price increase. As you may recall, because of tariffs, we took a $1 price increase across our entire portfolio. It's a 15% price increase, a pretty big price increase. And on a 15% price increase, we're only seeing low single-digit unit decline. So actually quite good if you think of a 15% price increase. It's one of the things that's driven kind of our overall sales for sure. So I'd say we feel great from pricing overall. And that's an environment we're the only ones who've really taken pricing. right? And part of it is we tend to lead when there's an external event, the pricing action. And then we see competitors follow at a different point.

There are different cadences. A lot of them will come out in spring or in the summer with their price increases. And we're different that way. Historically and going forward, we've always driven our growth through unit growth, which is different than many of our competitors who rely on price increases and average unit retail growth to drive their price increases. So we feel we're very well positioned in terms of being able to continue the strong consumption given what we've seen and how both consumers and retailers have reacted.

On top of that, I'd say our focus will be on unit growth. And we think particularly if I think about lapping the price increase that we've just taken, we have 4 key levers that we've always used, that value proposition, the innovation that we have, the marketing engine that Mandy talked about and then that proactive approach to optimizing our space in the retailers we're in with changing out the assortment and where we go through. So I think that's been a pretty successful formula. Even our previous 2 price increases. We've been able to not only do well through the price increase given our value proposition, actually improve that value proposition as competitors start taking pricing, but then continue to drive very strong unit growth even after the pricing action, and we'll continue to follow that same approach.

Okay. And maybe just give us your general thoughts around the holiday season and how you're performing in the U.S. again, post this price increase and keeping in mind it's a peak seasonal period for you and the volatility we've seen in the category recently.

Well, I think like everyone else, we're worried about the state of the consumer on the macro more broadly. We've actually been pleasantly surprised by the consumer spending through at least the initial part of the holiday season. We're seeing -- even as consumers are being more choiceful, they continue to choose e.l.f. We're having a good holiday season to start off with, and we're hopeful as we continue, particularly as we then roll into our spring innovation, we're actually quite hopeful.

Great. Well, we'll end things there. Thank you so much for coming. We appreciate it.

Thank you so much, Dara.

Thank you for having us.

Good afternoon, everyone. I'm Bonnie Herzog, Goldman Sachs Beverage Household and Personal Care, Nicotine and Cestar analysts. Joining us today is e.l.f. management team, including Chairman and CEO, Tarang Amin; and CFO, Mandy Fields.

Now before we get started, I'm required to make certain disclosures in public appearances about Goldman Sachs relationships with companies that we discuss. The disclosure relates to investment banking relationships, compensation received or 1% or more ownership. We're prepared to read out aloud disclosures for any issuer on request. However, these disclosures are available in our most recent reports available on our firm portals. Disclosures and updates are also available on the firm's public website.

Now with that out of the way, it's my pleasure to welcome everyone to today's meeting. Thank you again, Tarang and Mandy, for your time.

So I wanted to kick things off, Tarang, first with you just in terms of your results last week and the market's reaction. I was hoping maybe you could talk about the pullback we saw in your stock price? And did you expect such a strong reaction to your Q2 results?

Well, it was a surprise, I would tell you the fundamentals of our business are good. And so we do feel it was an overreaction. In fact, it was such the overreaction that we did tap into our authorization and repurchased $50 million of shares on Monday. This shows our confidence in the business and more importantly, the future and the white space we have ahead of us.

No, that's good to hear. And I did see that. So -- that should help. And then in general, Tarang, e.l.f. really has experienced robust growth as you touched on and you've been a market share gainer for quite some time. So could you discuss the broader U.S. mass beauty market trends? And what do you see in terms of market growth, competition and then your growth drivers in the context of that?

Well, look, we feel great. We've long been bullish on duty, both color cosmetics and skin care. We saw in the last quarter the category up 2%, which is consistent with the trend of the last decade. And so while the consumer is under pressure, what we find is they're choosing the brands that mean something to them. And so I'm very pleased with the strong consumption we continue to see on e.l.f. Color, e.l.f. SKIN, certainly Natrium and then obviously the breakout performance of Rhode. So I feel really, really good about the overall performance and how the consumer continues to vote for e.l.f.

Even in the last 4 weeks, we picked up another 160 basis points of market share. So we continue in only 27 consecutive quarters of market share gains, which I think people missed the significance of. We're now the #1 unit share brand, #2 dollar share brand. Clear line of sight of total market leadership. And as good as that is, what I feel even more bullish about is the potential we have ahead of us. We've often talked we're the #1 brand at Target with over 20% of their category. We see other kind of -- the only difference between target and others because they had almost a 6-year head start. So we see the trajectories of our other customers also going and trying to replicate what Target is done. And so we're now the #2 brand at Walmart with the most productive brand, our retailers will carry on a dollar per foot basis. And so we still have a ton of potential for both market share gains here in the U.S. as well as expanding internationally.

Okay. That's helpful. And I guess that brings me to my next question. So I kind of want to drill down on your results on your F Q2 results. So in the context of your organic sales did decline 3% in the quarter and shipments were below consumption, the consumption trends that you just mentioned. And it sounds like primarily due to your decision, I guess, to temporarily stop some shipments to retailers who, I guess, were slower to execute the price increase you took back on August 1. So I guess for me, first, why were some of the retailers unwilling to pass through the price increase, especially given that you did advertise that you were going to be taking pricing that had been public for a little bit. And then did it have anything to do with already high inventory levels at their end or possible concerns about elasticities?

No, this is totally our call. We've long had great price sanctity where everyday low price, we ask retailers even when they merchandise the brand to do so at full retail. e.l.f. is such a phenomenal value that it sells really well without discounting. And so this was the case, and we've seen this in the past and some other price increases where a particular retailer might be slower to reflect the right pricing on their purchase orders. Now that we have SAP, it automatically cuts cut those orders. And so -- and what we found is it's a good strategy to get that everyone and get the entire market to the right price, and that strategy worked. We're in normal shipments now, but that did certainly impact the shipments that we had in Q2.

So you're already seeing the shipments recover post Q2 results. And then during that period, did -- were there any out of stock situations as a result of what you just described and that maybe contributed also to some of the volume declines. Just trying to think through it further.

I mean there would definitely be out of stock depending on how long someone will shut off on what SKUs are shut off on. But I would say it wasn't widespread. I mean, retail is carry enough inventory to be able to carry for a while even if we're cutting orders. And so I would say there were some, but I wouldn't say that was not a contributor. The contributor was 100% us, not shipping customers. .

And then Tarang, what was it that you needed to do, if anything, to eventually convince some of these retailers to accept or pass through this pricing or are you facing pushback currently or everybody?

We're not facing pushback. We are -- like I said, where normal shipments have resumed, and it's the most effective tactic if someone doesn't reflect the right price retailers pricing the sole discretion of retailers, who we send product to is our discretion. And so we're fine. It always works. And from time to time, on a lesser basis, we will face this if someone starts discounting the brand or doesn't reflect the right price, we'll turn it off. And it's also one of the mechanisms by which sometimes retailers have their pricing algorithms where they'll pick up a low price on a marketplace or something else. And we'll just help that SKU off until everyone resets. So it's a way that we kind of enforce making sure people have the right pricing on e.l.f.

Okay. And then maybe switching to you, Mandy. As we're talking through all this, the results, your F Q2 results suggest, I mean it was a 10-point impact from this dynamic as I think about bridging the 7% consumption with the minus 3% organic sales. So first, is that the right way to think about the impact of these disruptions? And then second, when were these issues resolved? Was it towards the end of FQ2, like Tarang suggested that, that's been resolved, we should assume that, that's all been resolved? I guess I'm ultimately trying to understand how big this issue was at its peak and maybe how it's evolved over the past few months? And should we or could we see any lingering impact in Q3 as well?

Yes. So on the bridge that you're doing, I think that is -- it's fine to do that way. We haven't attributed 100% to the stop shipment. There's always going to be a little bit of a disconnect between shipments and consumption in a quarter. Over time, we know those two will marry up over time. And so I would say the stop ship issue was the majority of that disconnect, which is why we highlighted that. .

In terms of when resolution happened, I mean this was going on throughout the quarter. But like Tarang said, as we exited the quarter, shipments have started to resume normal course. And so we're in a good spot there. In terms of anything lingering? No, nothing lingering into this quarter, pertaining to stop shipments like I said, as we exited Q2, we were back in a good spot.

Can you touch on what might have been some of the other impacts on shipments in the quarter if it wasn't necessarily this?

Yes. The other thing that we talked about in the quarter was our international growth was 2% in the quarter. We were cycling the launch at Rosman. And so I think that certainly had an impact as well on what folks may have been expecting versus what came through for Q2.

Okay. And then thinking about the shipments versus consumption, guidance still implies that they will continue to like shipments will continue to lag consumption in the second half. So maybe help us understand the drivers of that. I mean I have to ask, but did you simply shift too much inventory last year? Or are there any other factors that are going to drive the shipment deceleration, as I can even though Tarang just mentioned shipments are resuming. I'm just trying to understand why they will decelerate in the second half?

Yes. So we really called out two things in the second half that we'll be cycling through. One is our space expansion in Dollar General. That was 11,000 doors type went in -- during the second half of last year, and also the space expansion that we had in Target. So those are some big expansions that we had in the base period that we're cycling this year. And so those will have an impact from a shipment standpoint. But again, I'd just point back to consumption. Our consumption remained strong. It was up 7% in the quarter, and we feel great about what we're seeing from how the consumer is choosing -- continuing to choose e.l.f.

You touched on like you mentioned last year, gaining all those doors distribution. Is there a way to quantify the benefit that you saw last year as a result of the expansion, whether it's Dollar General, Target. And I kind of want to get to ultimately how conservative your guidance is this year in spite of all this?

So we didn't quantify the shipment impact or what those were in the base. I can say from a -- if I take a step back and look at the guidance that we provided, 18% to 20% growth on the year. We still believe it's fantastic in the backdrop of broader consumer. I mean you have beauty, HPC kind of flat to up 1, high-growth consumer up 13%. And so we're coming in at 18% to 20%. Now Granite Rhode is a big part of that, but we think that's fantastic that we were able to find a company growing at such a rapid clip to bring into our e.l.f. portfolio. And so we're quite pleased with that. And then on the organic front, like I said, it's really kind of -- you look at Q2, that was our decision to stop shipments. You look into the second half, we're really cycling those big pipes in the base.

And I'd say the more important thing is consumption continues to be strong. We've actually seen a pickup in pace. So as we come out of the price increase and the initial kind of trough you always see with pricing, we're seeing much stronger consumption trends through the third quarter so far.

All right. And is this more -- is this indicative of anything else we're seeing at broader industry? Is this really just more your company and then -- or you think about the industry at large. And then do you expect to exit even your FQ4 more in line with consumption trends? Or will it be more of an F '21 -- or '27 story? Just thinking about this in the context of volumes and when we can expect to see volume return to growth?

Yes. So we haven't given kind of an outlook on when the shipments and consumptions We know that over time, like I said, shipments and consumption will start to get closer to one another. What we did say is that in Q3, again, with some of the stop ships that we had in Q2, Q3 is likely going to be a little bit stronger than Q4 as we go through, just given that you're going to pick some of that back up. And so I think that's really the way to think about it just from a shaping standpoint.

And I'd also say that the pipeline effect was more concentrated in Q4. So that's also one of the reasons why in terms of what we're lapping, you're going to see Q3 stronger than Q4.

Okay. And yes, I kind of wanted to get into that next just maybe taking a step back because I know we're drilling down on this dynamic. But just thinking about the full year guidance, you're guiding 3% to 4% organic sales for the year. Can you maybe -- what that implies for the back half is, I believe, 2% to 5%. That's QH '26. So -- and obviously, that represents a step-up from the minus 3% decline in Q2. So can you walk us through maybe the other key drivers of growth in the back half? And then ultimately, how should we think about the 300 bps spread in your OSG guidance in the back half? What are the key puts and takes there to consider? And then honestly, I'd love to understand what could possibly put you at the high end of that range versus the low end because it's a decent range.

Yes. So on the 2% to 5% in the second half, we are -- it is a step up from what we delivered in Q2, but I would say Q2 is not representative of kind of a run rate anyway, just given our decision to stop those shipments. So you will get some benefit from picking up some of those shipments that shifted out of Q2 into Q3. We talked about some of the opportunities that we have internationally. We would expect international growth to pick back up into the second half. Again, the 2% that we delivered in Q2, also not representative of the run rate that we would expect from an international standpoint. And really, I think what determines kind of low end to high end is our spring innovation and how quickly we see things take off there.

If you recall last spring, we had to cycle the lip oil launch in the base. And so that did not give us the growth earlier on that we expected. And so as we turn to Spring '26, we're very excited about what we're planning to launch. And so we'll be watching how spring performance comes in to kind of determine where we come in within that range.

So speaking of that, I don't think you've shared any of the innovation with us yet. But you feel pretty optimistic, confident that what you're bringing out this spring is going to be enough to lap, like you said, the success that you had last year with some of the innovation.

Yes. Yes, I think so. I mean we -- also, just to note, spring '25 was not a disappointment. It was still the rate of what we had in prior years. It just was not enough to comp that lip oil launch, which was an exceptional launch for us.

Okay. All right. I want to switch gears just a little and talk about some of the distribution expansion. You talked about sizable shelf space gains across retailers in the U.S., including Target and Walmart, and then I think more to come within Ulta in the spring of next year. So can you help maybe contextualize how meaningful these shelf space gains are, I guess, with respect to the 3% to 4% organic sales growth expectations that you have this fiscal year? And how significant these can be in FY '27 and beyond?

Yes. So the space expansion, we are always excited when our retailers are expanding our footprint. That's a great thing, and we've consistently picked up space each year with a subset of our retailers. So it's just a continuation of that. I would say the magnitude of the space that we have in the base is much greater. i was just talking about 11,000 doors expansion versus an expansion in Ulta, it's just not as large from a magnitude standpoint. So still very pleased with Ulta expansion, the Rossmann, Poland, the GCC countries with Sephora, DM in Germany, those will all be things that help to expand our footprint. But again, just thinking about the large space expansion that we have in the base, you're not going to see as great of a year-over-year lift because of that.

And that mainly affects the pipeline if we think about it in terms of what we're lapping and the disconnect between shipments and consumption. We feel great about the progress we're making. The other thing that I would say is as much as everyone is enamored with space, the biggest driver of our business over time has been our productivity, our dollar per linear feet productivity. And we always -- it always takes us a couple of cycles once we pick up a big swath of space to optimize that space. So we're really please, the target is now up to 20 feet of space on e.l.f. This spin gives us another ability to further optimize that space and drive greater productivity. I just had top-to-tops this week with Ulta and Walmart. They're extremely excited about what we have coming both from an innovation standpoint, but also in terms of Ulta picking up space. Walmart has been testing a highest vision set that has seen very good results. And so it will be up to them at what pace they roll those sets out, but that's a pretty meaningful difference in terms of what our presence at Ulta -- I mean Walmart will look like. And so we continue to make progress really across every one of our key customers.

No, that's a good point. And then just like you mentioned, the productivity. So some of the space that you took earlier, are we starting to see some of that productivity improvement then? Is that slowing in this fiscal year, again, more next fiscal year as I think about the continued expansion of distribution?

We should see some of that productivity improvement, but that may be a little bit of the range that Mandy talked about is it's always dependent on spring innovation and the resets and the timing of those resets of when you're able to see that optimization.

Right? And then Tarang, maybe taking a step back, what is the right long-term organic growth for e.l.f.? Is it the 3% to 4% that you're guiding this year? Or is there a path to reaccelerate growth?

Yes. No, we -- I would say, while we haven't given a long-term range, it's definitely higher than 3% to 4%. 3% to 4% is not anywhere near what the rate is. As we said, shipments match consumption over time. We're seeing double-digit consumption. So we'd expect double-digit overall growth and particularly given the white space we have. And similarly, with international, our launch is a 0 more back half loaded. So as we get into Rossman, Poland -- I'm headed to the GCC next week as we launch in Sephora and then the DM launch. DM is the largest retailer in Germany. And so we would expect definitely a pickup as we continue to see.

Yes. And I guess that's what as I'm listing and I've been processing all this. That's why I think I keep maybe struggling with trying to understand why shipments won't catch up to consumption sooner. And I mean would you be shocked if we get to the end of your fiscal year and they're still not closer to each other? Is it really just this timing that you kind of highlighted between the tough comps in Q4 and everything happening?

Yes. I mean, look, we're already seeing shipments pick up both with -- after our stop ship but also given the strong consumption that we see. So I think it's going to be a tale of like Q3 should come in strong, just given the momentum we're seeing both in consumption and resumption of shipments. Q4, we're not giving particular specific, but that's where a lot of the pipe effect would happen. So I think we'll be in a better position when we -- as we close out this quarter to be able to kind of absolutely show kind of how shipments and consumptions -- consumption matches up. And then you'll have a little bit of what you're lapping in Q4, but then over a long arc -- I've been CEO 12 years. I'd say shipments always match consumption for this business, just given how fast we move on shelf if someone does it take or cuts down on their inventory levels, they have to come back and replenish at a higher rate, just given how much faster we move than the rest of the category.

So if I -- yes, and that honestly makes sense. And if I'm hearing you correctly, it sounds too we should maybe assume that Q3 shipments will be stronger than consumption, just given what happened during Q2 and like you said, as they've resumed, is that fair to...

I think it's fair. We never know like when with order patterns, how fast shipments equal consumption we just know over a longer period, they always do. And so our assumption would be that I would expect shipments to be pretty strong here in Q3.

All right. Let's pivot to international. It's another area. I know that you see significant growth potential going forward. So maybe talk through for us what are some of your priority markets in that regard, how we should think about further growth potential in those markets versus maybe just expanding into new markets?

Yes. If you look at our history on international, if I just step back and take a multiyear view, as good as expansion has been and picking up new retailers in different countries, the majority of the growth has come from our first 2 international markets, Canada and the U.K. And so I would say the priority markets for us are the large existing markets where we have significant ACV coverage. So certainly, Canada, the U.K. and soon to be Germany. Once we pick up DM, we'll have, I think, over 70% ACV in Germany as well. And so I'd say, that will remain the core priority of continuing to build our position. Even in the U.K., we're now the #2 brand at Superdrug, the #3 branded Boots. But we're not in Tesco, Sainsbury a number of other kind of retailers. And so our first priority is Superdrug and Boots in the U.K., obviously, our own site in Amazon, and then -- and then certainly with Germany. And then these other markets, it's the same approach we've used, which has established the beachhead for e.l.f. by partnering with a leading retailer and then expanding from there. So we still have plenty of expansion ahead of us.

Okay. And then I know you touched on this earlier, international growth slowed down pretty significantly to low single digits in FQ2. So I know you lapped the Ross on launch from last year. But were there any other factors that impacted your performance in the quarter as well?

Yes, there are two -- I'd say there are two factors. The most important was lapping the Ross when it was 1,800 doors in Germany that we shipped in pipe that you're lapping. So it was quite a big expansion into Rossman. The second thing is we did see a slowdown in our U.K. business. The U.K. consumer is under threat, just like the U.S., perhaps even more so. So we saw a higher level of promotional activity from our competitors. I mean we saw things we've never seen before, like competitors introducing newness at 3 for 2, high levels of discounting, and that's certainly hurt us.

Now for the year, we've continued to pick up share in the U.K. I think we picked up 80 basis points of share in a 52-week basis. But the last 12 to 24 weeks have been weaker given the promotional activity. Now the good news with that is we have strong plans for the U.K., both with Superdrug and Boots. And we also, I'd say, promotional activity, these past patterns in the U.K. is you usually see a trough as soon as a promotion dies down from our competitors. And so we don't feel the current levels of promotion are sustainable for anyone at the level. So I think that will help us going forward, but we certainly did see a hit in the U.K.

Were you already seeing things improve in October? And how do we think about F Q3? Should we expect a pickup in growth? I'm thinking about also, I think, year-over-year compares' ease?

Yes. You will see a pickup in growth. We are already seeing sequential improvement in the U.K. We obviously have -- our launches are back half loaded. So you'll have the results from both Poland, the GCC, and then getting into Q4, you'll start getting into DM -- SDM sets too. So we have a better cadence, I would say, back half, definitely more back half loaded this year versus last year as more front half loaded.

And then I do want to just check in on trying to understand the impact from your launch in Sephora Mexico in October of last year. How do we think about that and lapping that?

We feel great about lapping Sephora Mexico. In fact, Sephora Mexico is going to be taking in e.l.f. SKIN as addition, they've loved the momentum they've seen with e.l.f. We also announced we're entering Ulta in Mexico, obviously, there -- they have an expansion plan within Mexico as well. So we see really good momentum within Mexico in terms of our plans, both with Sephora as well as entry with Ulta.

And so to your point, Ulta Mexico will be pretty incremental? Or do we think about some cannibalization, just giving...

No, it's pretty incremental. I mean the footprint, I mean, Ulta just started with Mexico. I think had like the first store first few stores that they have Sephora, very small footprint. So combined, the retailer have a huge portion of the market. So we absolutely see it as being incremental.

Right. I want to ask a little bit about gross margin. So your second half gross margin guidance of 200 bps sequential expansion versus the first half. It does embed some mixed tailwinds from your acquisition of Rhode along with pricing benefits. So could you maybe just talk about, I guess, Rhode's margin profile, how significant the mix tailwind is to gross margins as a result help frame that for us?

Sure. So we are expecting sequential improvement, as you said, 200 basis points better than where we exited the first half. So around a 71% margin into the second half, which is roughly flat to prior year. just given the tariff headwinds that we have faced this year coming in or expecting a year where your gross margin is only down 100 basis points is pretty incredible. Our average tariff rate out of China has been 60% this year versus 25% in the base. And so being able to nearly overcome that is pretty incredible. I'm very proud of the team for doing that.

Now I will say pricing is going to be a benefit for us in the second half. As we've talked, pricing just went into effect on August 1. So the first half did not get a big impact from pricing some, but not a full benefit. And then Rhode, as many folks saw Rhode's gross margins are strong as they have gone into Sephora, that is going to mix a little bit differently. But what we've said on Rhode is, overall, we still expect them to be accretive to our overall EBITDA margin as we go through. And so still going to be better from a gross margin standpoint, better than total company from an EBITDA margin standpoint as well.

Yes. I wanted to kind of drill down on that a little bit because I want to make sure I understand how much of a gross margin drag should expect for Rhode just relative to its current gross margin profile? And ultimately, what does it mean for e.l.f.'s overall gross margin trajectory? I mean maybe said 11:32 PM another way, like how do you expect Rhode to impact your overall margins, I guess this fiscal year and then definitely beyond?

We expect them to positively impact our margins, both in this fiscal year and beyond.

You haven't quantified that. Have you?

Did not quantify that, no.

You don't want to now? All right. But that's a positive? So it's...

That is a positive. I mean Rhode, they have a beautiful business strong top line growth as well as strong margins. And so we expect that to continue even with the investments that we want to make behind that brand.

All right. So in terms of EBITDA, your guidance for, I guess, 17% EBITDA margin in the second half, it does imply, again, a significant compression relative to what you guys delivered in the first half. So -- you just kind of touched on this. You talked about ramping marketing spend in the back half of the year, a primary driver, I think, of that. But how conservative is this guidance ultimately. How should we think about, again, the trajectory of your G&A expense, especially as you build your presence internationally?

Yes. So maybe let me start with the marketing side. We have -- since we started this year, outlook marketing at 24% to 26% on the year. In the first half, we only spent about 23% behind marketing. And so that's why we expect to see a higher rate into the second half as we seek to be within that 24% to 26% on the year. So that is causing some compression from an adjusted EBITDA margin standpoint into the second half. And so we continue to feel great about marketing the ROIs that we're seeing, and that's definitely an area that we want to invest. I know I've gotten questions on where is that investment going. It is primarily behind e.l.f. We will do some on Rhode as well, but e.l.f. is the primary driver of that shift in spend into the second half. .

And then from overall SG&A, I would say, non-marketing SG&A, for several years, we had leverage in non-marketing SG&A. We want to continue to invest behind the growth vectors. We're very much still in growth mode. So international skin care, team infrastructure, all of those things that we've talked about, those will continue to be areas of investment for us. But over time, I do believe there's an opportunity for us to get more leverage out of our non-marketing SG&A.

Yes. And I actually wanted to better understand that. Where do you expect some of the efficiencies to come from? Ultimately, what should we think about a stable underlying EBITDA margin over time for your business?

Yes. So we haven't given a target exactly on EBITDA margins. But what I can say is just even as we think about the things that impacted us this year, tariffs at an average of 60%. That certainly had an impact on our gross margins. And so now that we're in an environment where we're around the 45% level, that should help to be some relief, a tailwind for us as we move forward. So that's a good thing from a gross margin standpoint.

And then from an EBITDA margin or SG&A leverage standpoint, I think as we continue to grow as a company, as we continue to mature and scale, there are opportunities to get some efficiencies out of our supply chain out of the infrastructure that we've built. I think technology has been a big area of investment for us this year. Now that we get into a more stable place, I think we can start to get leverage there as well.

And remind me, thinking as you mentioned, technology, where are you at with AI? And how much will you leverage AI potentially?

Yes. AI is the talking point in every room that I go into. We are just getting our foundation in place. We implemented SAP this past summer, which was very successful. We're really focused on -- before you can get on a full AI journey, you have to make sure that the data is in the right place and accessible and that you can build on top of that. And that's really the stage that we're in, but certainly, AI will play a role in terms of efficiency and automation for us over time. We're already leveraging it across our marketing team. And I think that's the one thing about AI is that it's not just finance, accounting, IT initiative. It's really an enterprise-wide initiative that can unlock efficiencies overall.

And possibly with the consumer as well?

Absolutely. Yes, that's the one thing that's both a cost savings tool and a potential revenue driver if you think about where AI can go.

Yes. One small example is we're known for our strength on social. And for the longest time, we weren't able to answer every DM we got or every consumer message we got that's 100% driven by AI now, and we've got 100% coverage on DM and ability to engage with consumers that way. So it's just one small example, there is multiple workflows throughout the company that we're using AI for and we'll continue to ramp that up as time goes. And as Mandy says, I think I'm actually -- there will be efficiencies, but even more excited about the capabilities that we'll have.

Okay. That's helpful. And I wanted to maybe kind of circle back a little bit on the price increase. I just want to close the loop and make sure it's rolled out. I want to maybe understand from your perspective, the elasticities. You had a little bit more time. Did the elasticities come in as you expected? Do you think it's still too early maybe to get a proper read on that just in terms of the volume impact? And then I'd be curious to hear how competitors have reacted to pricing? It seems maybe they've been more surgical in their approach. Were you surprised by their response in certain areas? Or was it more or less what you would have expected?

Yes. So first of all, we're pleased with what we're seeing in the pricing. We had modeled internally unit declines. I mean, there's a 15% price increase, so we would expect some unit declines. But overall, if you take a look at our dollar and our consumption, we're pleased with what we're seeing. The pricing came in as we modeled. And so pleased with that. And then in terms of competitive reaction, we haven't seen that much competitive reaction yet, but that's not atypical. If I go back to 2019 and 2022, we led pricing. We again led pricing this round. Over time, we're unique in that our primary mode of growth has been through unit movement. Our competitors, that's not the primary mode of growth, primary growth -- area of growth is AUR improvement through price increases. So we would expect -- we never know when they're going to introduce pricing, but usually we see a round of it usually almost every spring -- as spring resets come and we see bigger movements then. So we would expect our competitors to have some pricing just because that's their known way of growing. And so we feel good about where we are right now from an elasticity standpoint, and we believe we'll get better over time.

And then, Tarang, you touched on this earlier, just a lot of your growth, it's really the driver in your mind is the innovation, holy grail approach to innovation. You mentioned, I believe it's on track to be a step up this fall, the innovation, while I guess we could describe it being sort of lagging in the spring. So is there anything more you could touch on in terms of subcategories where some of your upcoming innovation is focused on, ultimately, where do you see opportunity to build market share by subcategory?

Yes. So I'll step back. From an innovation cadence standpoint, we already talked, spring of '25 was lower than spring of '24. Spring of '24, as mx mentioned, it's not only the lipo launch, we just had way outsized level of innovation that way. And so while spring of '25 was our second biggest spring ever from an innovation standpoint. It was about half of what we saw in Spring of '24. The good news is fall of '25 is actually bigger than fall of '24. And then we are expecting spring of '26 to weaker than spring of '25. And I would say the good news is we're growing share in every segment. I think we grew 320 basis points share in Lip. We grew over 100 basis points of share, both in face and eye. And so you'll continue to see a very balanced innovation plan. We have innovation coming. And you don't have to wait too long because we start previewing some of that innovation. Really by the end of December, you'll start seeing it set on some of the newness end caps that some of our retailers have, you certainly see it online. But we have innovation across every one of those segments and subsegments, both in our strength categories, is '19 subsegments where we have #1 or #2 position as well as the concust categories. We've been building our kind of suite of mascaras. You've continued to see great momentum on lip and we have a number of new products. And I just wish I could tell you what they were right now, but they're strong. And they're not -- there's strong multiple dimensions, including given the state of the consumer right now, also making some pretty meaningful value statements with the consumer. And we know that's one of the core strengths of our business. Obviously, value took a hit with a 15% price increase. So we're very much interested in making sure we deliver what consumers know us best for. I mean 75% of our portfolio is still $10 or less. We still have a meaningful advantage when it comes to value, not just the price point, but the level of quality that we can deliver for that price is well recognized by consumers.

Okay. That's helpful. All right. Let's switch gears again. Let's talk about Rhode, which you acquired, I guess, in August. For those who are not as familiar, can you just maybe talk again about the rationale behind the acquisition? How prestige cosmetic and skin care brand using fits within your portfolio that as you kind of just touched on, has been primarily focused in the mass beauty category?

Yes. No. So we -- Rhode has been a phenomenal acquisition. I couldn't be more excited to welcome Rhode into the e.l.f. Beauty family. The approach we take is we take a look at the category, we've used this stat before, there are 1,900 cosmetics and skin care brands tracked by Nielsen, Yet very few have been able to scale. There are only 26 that have more than $100 million of retail sales. So we've had our eyes on Rhode for a while because, I mean, they went basically from 0 to $212 million of net sales in less than 3 years with DTC only with 10 products. So we saw the residents it was having with consumers. And the rationale for Rhode is it very much fits our vision. Our vision is to be a different kind of beauty company by building brands that disrupt norms, shape culture and connect communities, and Rhode absolutely does not. I mean, I've never seen a brand where people are willing to wait camp out overnight, wait 14 hours for an event that Haley is not even at.

So we saw the level of consumer interest. There are so many parallels with e.l.f. in terms of our engagement model, their engagement model, how we entertain and delight our communities. And so a massive opportunity in terms of white space ahead of it. We launched the brand in Sephora just in September, it was by far the biggest launch to 4s ever seen in North America, 2.5x their previous record holder. This week, we launched the brand with Sephora in the U.K. Again, we saw the launch. I mean it's obviously only 5 days, but in the first 5 days. we've done 3x what the previous record holder had U.K. And so the brand has tremendous momentum and very much fits our spirit of disruption.

All right. That's helpful. And then I believe you've talked about just the runway of growth, maybe about 40%, I think, this year for Rhode. How should we think about ultimately normalized growth once we lap like you just touch on some of these Sephora games?

Well, we see plenty of growth ahead. I mean the core fundamentals from a consumer standpoint are really strong. We talked about wanting to invest more in Rhode like they have never done any awareness building on Rhode. There's obviously strength, but the runway from a customer standpoint, I think some investors were confused. They were using, I think, Fenty numbers. Fenty was a global launch in all 18 countries with Sephora. So the strength that we have with Sephora certainly opens us up for future potential of Sephora globally as well. And so I think you're going to see -- we're going to -- obviously, the focus right now is continue to execute with excellence in Sephora North America and the U.K, but we do have further way more distribution opportunity going forward. And so we haven't given a long-term run rate, but we do expect it to continue to be a faster growth rate than the balance of the portfolio, just given the early days of entering into retail.

And maybe sticking with this, as you touch upon how successful the launches were Sephora here and the U.K. How incremental has that been? I assume it obviously is cannibalizing just some of the DTC customers? Like how many new customers are you seeing it bring in? Or is it too early to tell?

It's done. We haven't given the specific cannibalization rate for the DTC part of the business, but we're pleased with what we're seeing. It's below what we had modeled in our acquisition models, and so we feel really good. We continue to see strength. And part of that strength is driven by their strategy. And just this week, we had the biggest -- we do something exclusively online for Haley's birthday. It's always a big event in November. And I just saw the numbers coming off of that event, that some of these exclusives we're using for the Road site have actually helped it do better than the cannibalization we had expected. We had -- particularly on innovation, where we give it a lead on our own site before we bring it into Sephora or into retail has been really successful. The birthday event that we had has really surpassed our expectations. So it's been one of those things where we're seeing strength both in Sephora, but also on our side.

Yes. I mean -- okay. So then thinking about Rhode and the brand's awareness, how would you describe it relative to the awareness behind your own e.l.f. brand? I mean, -- do you think there's still a lot more opportunity...

It's a fraction. I mean, if you look at the progress we've made on e.l.f., we went from -- just in the last few years, we went from 13% on ad awareness to 45%, unaided awareness. Just phenomena being consumer 34 years. I've never seen a brand pick up that much awareness and new consumers. We're not only #1 amongst Gen Z, but most purchased amongst Gen alpha and millennials. We picked up a ton of Gen X as well in our latest usage study. And so we know our marketing is working, both in terms of driving unaided awareness and in terms of having ROIs above the multiple. Rhode has an even bigger opportunity. It's I don't know if we've disclosed on an awareness. I think we talked about aided awareness, it's still a fraction of what other prestige skin care brands have. And given Rhode is also while it's in prestige, I would call it accessible prestige, right? It's not luxury. It's not on the higher end. It's very much accessible to consumers. And so we believe there's a huge opportunity with rate. Certainly, the Sephora launches are helping with that in terms of bringing many more consumers into the franchise if we take a look at the number of new consumers that are coming in, but we still have a massive way to go on both Rhode as well as Naturium. Naturium, we did our first awareness build. We continue to see very strong consumption trends on Naturium, and we liked what we saw in terms of the campaign that we just did.

Yes, and I definitely want to touch on the term next, but I want to ask really quickly on Rhode and just thinking about the launch in Sephora. Remind us how that impacted, whether it was of FQ2 or will it be FQ3, shipments in -- how do we think about that?

Yes, I've got that question quite a bit. So the pipeline into Sephora is not a part of our fiscal '26 results. That happened prior to the August 5 acquisition close. And so when we look forward into fiscal '27, that will not be something that we'll have to cycle in our reported financials. Now some folks are looking at it as, hey, if Rhode is a $300 million business on an annualized basis, they actually will -- if you're using that number, that does include the Sephora pipeline, right? We talked about $200 million contribution to our fiscal about $300 million on an annualized basis. And so if you're looking at things on an annualized basis, obviously, that pipe is a part of that. But on our reported numbers next year, we will not have to cycle that pipeline.

Yet you'll still be having this larger base and grow from that?

Correct.

Okay. That's -- I want to move to Naturium another brand you acquired. I think it was 2 years ago, and you launched recently, I think its first-ever awareness campaign. So maybe walk through us for -- or walk through all of that for us and the brand's performance so far, any initial response from your campaign? And have your growth expectations since you acquired the brand? Have they evolved and changed?

We're pleased with Naturium as well. Again, it was another one of these brands that went from 0 to over $100 million of net sales in less than 2 years. Definitely resonated with consumers. It complements e.l.f. SKIN. e.l.f. SKIN is a very similar model to e.l.f. Cosmetics. We take inspiration from our community, best products in Prestige, bringing a great value. Rhodes at a higher price point, around $18 a clinically effective biocompatible skincare, also very strong in the body category, almost 40% of its user base is men. So distinct and complementary brand to e.l.f. SKIN. And the performance has been really good, including of the awareness campaign I just talked about. In the quarter, we talked about launching or recently launching the brand with Sephora in Australia. We've picked up more space and doors with Boots in the U.K. And in the U.S., it's original distribution was only at Target, Amazon in its own site. We successfully launched the brand into Ulta Beauty. We're seeing very strong trends with Ulta Beauty even as we've lapped the launch years. And so we're seeing great momentum. And I'd say from an overall expectation standpoint, it's ahead of what we modeled. It still is strong growth on Naturium that's continued, and we still have a ton of white space on it during from both a distribution standpoint as well as continued awareness building.

I want to circle back to tariffs. We have to, I think. Maybe talk a little bit more about that. I know you've diversified your business over the past several years. But I think you still have about 75% exposure to China. Obviously, we've seen a lot of volatility related to cross-border tariffs, et cetera. So first, are you looking to further diversify your production away from China, such as your international business grows in the mix? And second, your guidance, it's predicated on tariff rates being the 45%. So is that inclusive of any tariff impact at Rhode as well as -- or is it purely e.l.f.? And then how should we think about the impact for tariffs in Q3 versus Q2?

Yes. So the tariff certainly has been a journey this year. If I go all the way back to the beginning of this year, we were at 170% tariffs at one point. Certainly, it was welcome relief on that came down to the 55% level. And now here we are, just a few weeks ago, announced or actually just went into effect on Monday, the 45% level. And so that's what's baked into our forecast for our guidance for the balance of this year, and that's a total company number. So that's inclusive of any other tariffs from other countries and Rhode and things like that. So that is an included in our outlook. .

Now to go back to your question on diversification, that is something that we continue to make progress on. If you rewound the clock 5, 6 years ago, 99% of our product was coming out of China. Today, we're closer to 75%, and I certainly would expect that to be even less as we exited this year. And we really think about diversification 2 ways, and I think you touched on them. One is supply chain diversification, which is finding like-minded suppliers in other areas outside of China to work with, which we've made progress on, and also working with our Chinese suppliers on setting up operations outside of China as well, another tactic that we've taken in terms of supply chain diversification.

And then the other side of that is business diversification. As more of our business is conducted outside of the U.S., that also is more profitable for us. We avoid the tariff, and that's a good thing. So those are really the two things outside of pricing, which we talked a lot about the two ways that we're trying to offset the impact of tariffs this year.

And the only other thing I would add to that is if you look at Rhode and Naturium, which are growing at a very fast clip, Naturium's produced 100% of the U.S. componentry comes from China, but the actual feeling is in the U.S. Rhode, similarly, while they may have some componentry coming from China, their manufacturing is in Italy and South Korea primarily. So as those businesses continue to grow, that will also bring down the percentage that's done in China beyond our own diversification efforts of working with our Chinese suppliers to set up operations in other countries.

Yes, that's a good point. I was aware of that. So that's helpful. And then lastly, maybe just quick on tariffs. I don't know, but depending on what the Supreme Court decides if we see lower rates or things move lower, how should we think about that flowing through the P&L? How quickly potentially could we see, that's the first question. And could we also see price rollbacks would you consider that? Or do you think your price gaps are still at healthy levels?

Well, like Tarang said, on the pricing front, the elasticities that we're seeing are very reasonable, given a 15% price increase and seeing low single-digit declines in units, I do not think that we'd be looking at a price rollback. We have found that -- we have pretty solid pricing power. We still have good gaps versus competition as we go through to Tarang's point, this category has grown through pricing, and so certainly expect our competitors to take pricing at some point. We've really not seen a window where there's an opportunity to take price where we didn't see folks move on price. And so don't expect to roll back pricing. It should a windfall come from the Supreme Court decision. And then we'll have to see from a P&L standpoint. I don't know the timing of when that's going to happen and how we might flow that through, if we take it back through inventory or if we just immediately flow it through EBITDA. So I think that's something we'll look into should we ever see a refund of those tariffs.

I think we're running close on time. So maybe I want to finish on just capital allocation. How should we think about your priorities in the near term? I mean do you think there are parts of your portfolio that can benefit from M&A? And then as you think about future M&A targets, what do you look for in a target? And should we assume that you're continuing to pursue potential M&A?

Yes. go ahead, Tarang.

Yes. I'd say, look, our clear priority is investing in our brands and our business. And particularly the recency of the Rhode acquisition, I would say we're really focused on the growth portfolio we currently have. And then in terms of your question, what do we look for in M&A? I would say we're looking for disruptive brands that fit our vision that have a strong profile both in terms of top line growth as well as margin profile and that complement the existing portfolio. And so over time, we've looked at a lot of things. We've been quite choiceful in terms of what we got, and we had 2 terrific acquisitions in Naturium in Rhode. And so I'd say that's our near-term focus as we go forward. The good news is we have a strong balance sheet. So even after the acquisition of Rhode, our net debt-to-EBITDA ratio is still under 2 turns. So we have capacity, but I'd say the focus right now is our current portfolio.

Okay. Well -- maybe what I want to do before I finish is go back to maybe the first question and thinking about the stock reaction, what do you think train and Mandy is being missed right now and you want to stress what do you think is being underestimated with your business or story?

I think, look, there's obviously a lot of noise. We did not have guidance out there. Consensus got away from us. So you have the shock there, you have the added complexity of us stopping shipping and maybe we should message better the pipeline that we had in the back half. And so I get it, people got confused, they got panicked. But I think the thing that's being missed is the consistency of category-leading growth. 27 quarters of net sales averaging over 20%, 27 quarters of market share gains, never seen that done in our space before and still tremendous white space ahead of us. in so short-term focus they totally missed the whole significance of share growth and sustained share growth over time. They totally missed how much of the world is still open to us and the success we have as we enter in with different retailers. And they're totally missing the strength of the dollar per linear foot of productivity in the U.S. and us continuing to get rewarded by our lead retailers in terms of what we're doing. And then they absolutely miss the strength from a consumer standpoint of our brands. It's almost like they've taken for granted. There's no other brand that's #1 amongst Gen Z, Gen Alpha, millennials, and even picking up Gen X as we're going through and how much still white space we have, both from awareness standpoint, we had a stat on the call, which is pretty -- on the one hand, pretty special, where the e.l.f. brand is purchased by 1 of every 3 females in the U.S., which means 2 out of every 3 don't purchase it. So we still have a tremendous amount of runway and then the underlying strength from across our brands when we look at the core brand equity measures, overall strength is, I think all that is being missed right now for the short term. And probably the biggest is just how much how much wind we have ahead of us in terms of growth and how bullish we are with the prospect across our portfolio.

All right. Well, that's a good way to end things, and I really appreciate your time, Tarang and Mandy. Thanks for joining, and thanks, everyone, for listening in today.

Thank you for joining us today to discuss e.l.f. Beauty's Second Quarter Fiscal '26 results. I'm KC Katten, 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 Tarang.

Thank you, KC, and good afternoon, everyone. Today, we will discuss our second quarter results and our outlook for fiscal 2026. I'm proud of our incredible e.l.f. Beauty team for another quarter of consistent category-leading growth. In Q2, we grew net sales 14% and delivered $66 million in adjusted EBITDA. Q2 marked our 27th consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of high-growth companies. We are 1 of only 6 public companies out of 546 that has grown for 27 straight quarters and average at least 20% sales growth per quarter.

Beauty continues to be a resilient category. In Q2, the U.S. mass cosmetics and skin care categories grew approximately 2% year-over-year, in line with the low single-digit growth we've seen in the category over the last 10 years. On a consumption basis, our namesake e.l.f. brand grew 7% this quarter, 3x the category and grew our market share by 140 basis points. We delivered triple-digit share gains across eye, lip and face.

Consumers continue to choose e.l.f. Q2 marked our 27th consecutive quarter of market share gains, making e.l.f. the only brand out of nearly 1,000 cosmetics brands tracked by Nielsen to gain share for 27 consecutive quarters. In August, we closed on the acquisition of Rhode, the high-growth beauty brand founded by Hailey Bieber and executed a record-breaking launch in Sephora North America. The acquisition contributed $52 million or approximately 17 percentage points to our net sales in Q2.

On an organic basis, excluding Rhode, our net sales were down approximately 3% this quarter. Shipments were below consumption, primarily driven by our decision to temporarily stop shipments to retailers who are slower to execute our price increase that took effect on August 1. We're pleased to report this is now resolved and normal shipments have resumed.

Looking at fiscal '26, we're pleased to provide full year guidance, which calls for net sales growth of 18% to 20% year-over-year. This is on top of the 28% net sales growth we delivered in fiscal '25 and projects another year of best-in-class growth among consumer companies. Within that, we expect organic net sales, excluding Rhode to be up approximately 3% to 4%.

We believe our consumption trends and market share gains are the best indicator of the underlying health of our business and are pleased by our ongoing strength we've seen in fiscal '26 to date. We expect our shipments to be below consumption in fiscal '26, particularly as we lap significant distribution gains in Dollar General and Target that occurred in the second half of fiscal '25. Over a longer period of time, shipments tend to even out with consumption.

We remain confident in our strategy to grow market share and capitalize on the white space ahead of us. We believe the addition of Rhode enhances our long-term growth. In fiscal '26, we expect Rhode to contribute about $200 million in net sales to our results. When considering the $98 million of net sales Rhode achieved in the first half of the year prior to the acquisition close, our outlook assumes Rhode will generate approximately $300 million in net sales on an annualized basis for the 12 months ending March 31, 2026, growing approximately 40% year-over-year.

The strength of our brands is evident when viewed in the context of the overall beauty market. While beauty has comparatively low barriers to entry, very few brands have been able to scale. Of the over 1,900 cosmetics and skin care brands tracked by Nielsen, only 26 has surpassed $100 million in annual retail sales. With our acquisition of Naturium 2 years ago and the acquisition of Rhode in August, we now have 4 brands that surpass this threshold.

Our brands are unified by our vision to be a different kind of company by building brands that disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. Let me take a moment to discuss our brands and key milestones we achieved in Q2. First, turning to e.l.f. Cosmetics and e.l.f. SKIN. The combination of our value proposition, powerhouse innovation and disruptive marketing engine continue to fuel our market share gains, deepen existing community connections and expand our audience segments.

In Piper Sandler's semiannual, Taking Stock With Teens survey, e.l.f. Cosmetics ranked the #1 favorite team makeup brand for a record 8 consecutive surveys. It's the first time in the 25-year history of this survey that any cosmetics brand has achieved this level of sustained leadership. Notably, our 36% mind share is now 4.5x the #2 brand. E.l.f. SKIN also reached a new high, increasing its ranking to the #7 favorite teen skin care brand, up from #8 last year.

We continue to grow our audience beyond Gen Z. Our latest awareness and usage study shows e.l.f. purchasers growing substantially amongst millennials and Gen X. We're also the most purchased brand among Gen Alpha, showing our multigenerational appeal. Today, e.l.f. Cosmetics is purchased by approximately 1 in 3 females in the U.S.

Our marketing is working, delivering ROIs multiples above industry benchmarks and expanding our brand awareness. Over the last 5 years, we've grown e.l.f.'s unaided awareness in the U.S. from 13% to 45% in Canada from 8% to 26% and in the U.K. from 6% to 19%. Looking at 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 an extraordinary value with our signature e.l.f. Twist.

As one example, Power Grip Primer is the #1 SKU across the entire U.S. cosmetics category. Our customers crave more, which is why we recently launched our limited edition Mega Power Grip Primer, containing 50x the amount of product as the original Power Grip. Mega went viral, selling out in 3 minutes on TikTok Shop where it launched exclusively. Our latest e.l.f. SKIN campaign highlights our Bright Icon Vitamin C + E + Ferulic Serum and its incredible value at $17 compared to a prestige item at $185. Proof of our ability make the best of beauty accessible and expand the category.

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Our value proposition continues to resonate with our consumers. Our $1 global portfolio wide price increase went into effect on August 1 to help mitigate some of the increased costs we're seeing from higher tariffs. Even after this increase, 75% of our portfolio sits at a phenomenal value of $10 or less. For context, the average price for e.l.f. Cosmetics is $7.50 today as compared to approximately $9.50 for legacy mass cosmetics brands and nearly $30 for prestige brands.

While still relatively early since our price increase went into effect, we're pleased that our consumption continues to outperform category trends. The strength of our productivity and category-leading results continue to earn e.l.f. additional space with our global retailers. In Target, our longest-standing national retailer, we increased our footprint earlier this year to 20 linear feet, up from 13 feet previously.

In Walmart, we increased our space last year to 12 feet from 8 feet previously. We're pleased to report that in spring 2026, we'll be increasing our space with e.l.f. Beauty beyond the 12 feet of space we have today. Looking outside the U.S., we're excited for the expansion we have planned this fall. E.l.f. will be launching with Rossmann in Poland and with Sephora in the 6 countries in the Gulf Cooperation Council, our second launch with Sephora following our success in Mexico.

We're also pleased to announce we'll be expanding our reach in Germany in spring 2026, launching e.l.f. with DM, building upon the successful launch we had with Rossmann last year. Next, turning to Rhode, the breakthrough beauty brand founded by Hailey Rhode Bieber. I've been in the consumer space 34 years and continue to be blown away by what Hailey and her team are building.

In just under 3 years since its founding, Rhode has seen exceptional growth, achieving $212 million of net sales, DTC only with just 10 products. In September, we launched Rhode with Sephora, the world's leading global beauty retailer. The launch is off to a phenomenal start. In fact, Rhode had the biggest launch in Sephora North America's history, exceeding the previous record by 2.5x.

To celebrate the launch, we have the opportunity to ring the opening bell at the New York Stock Exchange, bringing together the trailblazing female founders that are part of the e.l.f. Beauty family. In terms of what's next, we're seeing significant pent-up global appetite for Rhode. International drives nearly 20% of Rhode's DTC sales, while 74% of the brand's social followers are from outside the U.S. We're excited to launch Rhode in Sephora U.K. this month and further its global reach.

Turning to Naturium, a disruptive brand focused on ingredient-led biocompatible skin care. This quarter, we ran Naturium's first-ever awareness campaign, shaped by the voices of Naturium's loyal community who share how its products help them love their skin. The campaign reflects the brand's unwavering commitment to delivering the consistent skin care to everyone, everywhere, every day.

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As we look ahead, I'm proud that we continue to lead with purpose as we strive to create a different kind of beauty company, one that is purpose-led and results driven. Our newly released fourth annual impact report demonstrates how we make the world a better place for every eye, lip and face.

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In summary, we're excited by the momentum we're seeing across our brand portfolio and remain confident in our ability to continue to gain share and deliver best-in-class beauty I'll now turn the call over to Mandy to talk more about our second quarter results and our outlook for fiscal '26.

Thank you, Tarang. Q2 net sales of $344 million grew 14% year-over-year on top of the 40% growth in Q2 of last year. The acquisition of Rhode contributed $52 million or approximately 17 percentage points to our Q2 results. Looking to our organic sales trends. Our consumption outpaced category trends by over 3x, leading to 140 basis points of market share gains in the quarter.

As Tarang mentioned, our Q2 shipments were below consumption, primarily driven by our decision to stop shipments on orders not reflecting our August 1 price increase. Pricing and product mix added approximately 21 points to net sales growth, partially offset by a 6 percentage point impact from lower unit volumes.

Looking to our geographic regions. Our net sales in the U.S. grew 18% year-over-year in Q2, while international net sales grew 2%. As a reminder, this quarter, we lapped our launch into Rossmann, Germany in the year ago period, which marked our largest international launch to date.

We are pleased with our continued portfolio and geographic expansion. We're in the early days of the international opportunity we see. For context, international drives approximately 20% of our net sales as compared to legacy peers having over 70% of their sales outside of the U.S. Q2 gross margin of 69% was down approximately 165 basis points compared to prior year. The year-over-year decline was largely driven by incremental tariff costs. This was partially offset by gross margin benefits from our price increase and mix.

On an adjusted basis, SG&A as a percentage of sales was 56% in Q2 as compared to 53% in Q2 last year, primarily driven by ongoing investments in our team and infrastructure. Marketing and digital investment for the quarter was 23% of net sales as compared to 24% in Q2 last year. Q2 adjusted EBITDA was $66 million, down 4% versus last year. Adjusted net income was $41 million or $0.68 per diluted share compared to $45 million or $0.77 per diluted share a year ago.

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 $194 million in cash on hand compared to a cash balance of $97 million a year ago. Our liquidity position remains strong with less than 2x leverage after our acquisition of Rhode. 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 global expansion. I'm pleased that our transition to SAP has been successful since our go-live in July with Q2 marking our first full quarter close on the new system. Our smooth go-live is a testament to the exceptional talent and dedication of our e.l.f. Beauty team and partners.

Now let's turn to fiscal '26. As we spoke about last quarter, we plan to provide a full fiscal '26 outlook once we had greater clarity on tariffs. To set the foundation, about 75% of our global production today comes from China. Between April 9 and May 13, we were subject to tariffs at the 170% level. From May 14 through the end of October, product imports to the U.S. were subject to tariffs at the 55% level. As of November, we are now subject to a lower tariff at the 45% level given the recent reduction announced by the administration.

While tariff rates remain volatile, we believe the lead time of our supply chain gives us greater visibility into our costs for the second half of the year. Our outlook assumes that the 45% tariff rate stays in place for the remainder of our fiscal year. For context, we estimate every 10 percentage points of incremental tariffs results in a $17 million gross impact to our cost of goods sold on an annualized basis before any mitigating actions.

For the full year, we expect net sales growth of approximately 18% to 20%. Adjusted EBITDA between $302 million and $306 million, adjusted net income between $165 million to $168 million and adjusted EPS of $2.80 to $2.85 per diluted share. We expect our fiscal '26 adjusted tax rate to be approximately 23% and a fully diluted average share count of approximately 59 million shares.

Let me provide you with additional color on our planning assumptions for fiscal '26. Starting with the top line. For the full year, we expect net sales growth of 18% to 20% year-over-year. Within that, we expect organic net sales, excluding Rhode, to be up approximately 3% to 4% year-over-year. On top of that, we expect Rhode to contribute about $200 million in net sales over the 8 months since our August 5 closing date.

Looking to the second half, our guidance implies net sales growth of 24% to 27% year-over-year. We expect Rhode to contribute 22 percentage points to net sales growth in the second half. On an organic basis, this implies 2% to 5% net sales growth. As Tarang discussed, we are pleased by the ongoing strong consumption rates we have seen in fiscal '26 to date and expect to continue to outperform category trends into the second half.

We expect shipments to be lower than consumption as we cycle expanded distribution in Dollar General and the over 50% space expansion in Target that we had in the second half of last year. Turning to adjusted EBITDA. For the full year, we expect $302 million to $306 million in adjusted EBITDA, up 2% to 3% year-over-year. This implies adjusted EBITDA margins of approximately 17% in the second half as compared to 22% in the first half.

There are 2 key factors impacting second half adjusted EBITDA margins. First, marketing. We are targeting marketing and digital spend in the 24% to 26% range for the full year. That implies marketing spend of approximately 27% to 29% of net sales in the second half, up about 600 basis points on the top end relative to the 23% of net sales we spent in the first half.

We expect this to be partially offset by gross margin improvements. We expect our gross margin in the second half to be approximately 71%, up about 200 basis points sequentially relative to the first half with anticipated benefits from price increases and mix of business given our acquisition of Rhode.

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 for our growing portfolio of disruptive brands. With that, operator, you may now open the call to questions.

[Operator Instructions] And today's first question comes from Dara Mohsenian with Morgan Stanley.

I just wanted to delve a bit more into the corporate top line guidance for the year and the downside in the quarter ex Rhode when you think about the base e.l.f. heritage business. Just can you give us more of a sense for how much of a drag shipments was versus underlying consumption trends in fiscal Q2 around the pricing [indiscernible]?

And a similar question for the back half, are you making up any of that gap from the pricing issue as you start to ship again? And maybe what's the total full year impact? Perhaps another way of asking it more simply is what are you expecting for underlying U.S. consumption trends?

And then also, Tarang, just how did you resolve the issue around pricing with your retailers? Did it change the economics of the relationship at all going forward? Was it more just a temporary issue that you move past? And are there any issues with out of stocks that may impact forward consumption trends just as we think about the go-forward consumption?

Dara, I'm going to start off by answering the question. I'll start with Q2. As we said, we're very pleased with the consumption that we saw in Q2, outperforming the category. Category grew around 2%. E.l.f. brand grew around 7%, so almost over 3x what we saw from the category performance. When we talk about the pricing impact, that is the primary driver of the disconnect between consumption and the shipments that we delivered in the quarter.

And so I would say it's never a one-to-one consumption to shipments, but we know that over time, consumption and shipments do net out. And so to answer your second question on are we going to pick up any of that as we go into the second half? Yes, I think it's fair to assume that we're going to pick up some of that as we head into Q3.

But like I said, it's not going to be a one-for-one exact on the quarter. But over time, we do expect consumption and shipments will net out. Also to answer your question on underlying growth on the second half, as we talked on the call, on an organic basis, we're outlooking 2% to 5% growth on the top line. That, again, is led by strong consumption.

Our consumption is up 10% on a fiscal year-to-date basis and has even strengthened as we've gotten into this quarter. And so again, pleased with what we're seeing from a consumption standpoint. But what we have in the second half is cycling space expansion at Dollar, about 11,000 doors in the base as well as our 50% space expansion in Target.

So we are cycling that pipeline that's going to have an impact there from a shipment standpoint, but feeling very good about the consumer strength that we're seeing with that consumption continuing to be strong.

Dara, on your second question on pricing, let me step back a little bit and talk a little bit about our philosophy on pricing, which is different than many of our competitors. We believe in an everyday low price that's consistent across retailers. And so the way we've done that is we have -- we basically have the same price everywhere that same kind of low price every day.

The other thing that's different and that contrasts with many of our competitors who tend to price higher and then discount or run promotions. We believe that approach has been really good for our consumers in terms of knowing that they can buy e.l.f. everyday low price. The other area that we're different is unlike many of our competitors who have large trade budgets, we don't offer trade funds for one retailer to embarrass another one in terms of sale and lower pricing.

So that's our overall approach. In the quarter, what we had is our pricing went into effect August 1. We had a few retailers that are slow to reflect that new pricing. As soon as we don't see the right price on the PO, we don't fill that order. And the way we resolve that is it naturally resolves. Retailers want to have e.l.f. and they want to have it at the right price. And so we're now, as I said, resolved it. We're shipping normally, and it's a way of us keeping price sanctity in the market.

And our next question today comes from Olivia Tong at Raymond James.

You touched a little bit on this earlier, but where did you exit the quarter? And then can you help us understand sort of where the deceleration was the highest? It looks like it was both in the U.S. and international markets. Obviously, you priced them both. I know you just said you don't expect a one-for-one catch-up.

But I'm surprised if it's just a disagreement towards when pricing first went into place and things are back to normal levels now, why you wouldn't expect more of a catch-up in a more rapid manner. So if you could help explain the discrepancies there, that would be great.

So from a consumption standpoint, as we talked, Olivia, we had about a 7% consumption rate in Q2. As we've gotten into Q3, we have seen that to be a bit stronger. So feeling great again from a consumption standpoint. In the quarter, from a U.S. versus international growth rate, we saw an 18% growth in the U.S. and a 2% growth rate in the international markets.

Now as a reminder, the 2% on international, we are lapping or we're lapping the launch into Rossmann, Germany, and that was our largest international launch that we've had to date. And so that was impacting that international growth number as we cycled through that.

And to answer your last question on the catch-up, like I said, shipments and consumption will net themselves out over time. But based on order patterns or maybe the consumer has kind of moved on from that order, orders are resubmitted at different levels. It's not going to be exactly a one-to-one catch-up on those shipments into Q3.

Got it. So just to clarify, you didn't see any of this consumption mismatch in your view in international markets with respect to pricing. It was primarily the tough comp associated with the launch into Rossmann in Germany?

That's right. I would say that was the primary driver of the international performance.

Got it. Understood. My second question is really around your view on tariffs and how much of the inventory that was at the peak has now flown through, whether all of it has flown through or there are some that continues to impact you in the second half?

And then on marketing, I guess, why the need to increase it as much as you are planning in the second half? Are there initiatives in place that you want to support? Is it primarily behind Rhode? Just trying to understand that 300 basis point increase in marketing and what's driving that?

Yes. All right. So then on tariffs, so let's see here. Tariffs, as we talked on the call, a little bit of good news on tariffs with the administration calling out that tariffs were reduced by about 10 points to 45%. So we were pleased to hear that news. I will tell you that all in on an average basis, China tariffs impact to us this year is about a 60% tariff that we face, so versus the 25% tariff last year.

So we have about 3,500 basis points of tariff headwinds that we're dealing with this year. I would say from a gross margin cadence standpoint, you are starting to see that gross margin improve as we head into the back half. In our prepared remarks, we talked about seeing a 71% gross margin in the second half. That's relatively flat to where we were last year from a gross margin standpoint. And on the year, if you play that through, gross margin is looking to be about down 100 basis points on the year.

Again, most of that in the first half where we were down 200 basis points. So I think we have done a great job of shoring up gross margin as we've gotten into the second half of the year, again, with the pricing piece with Rhode coming into the mix, feeling good about our gross margin position given the headwinds that we faced from a tariff standpoint.

And then on marketing, marketing really is a timing shift. So if you look at what we spent in Q2, we spent about 23% of our net sales behind marketing and digital. As we've talked all year, we want to be in that 24% to 26% range. We did have some campaigns shifting out into Q3 and to Q4. And so that, I would say, is just more of a timing thing. No difference in where we have been targeting marketing for this year in that 24% to 26% range.

And our next question today comes from Andrea Teixeira with JPMorgan.

I just want to follow up on the consumption number you gave us for year-to-date. So you said 10% year-to-date, which is supported. But then in the last -- since you implemented the price increase, can you comment on since August, I believe went through, how much was that? And then related to the performance that you had in Rhode quarter-to-date, I think it was like $57 million. Just curious with the shipment and consumption dynamics there.

Understandably, you have the $200 million for the 8 months, but just to understand how we should be thinking in terms of the timing of the shipments, the Sephora initial shipments were not part of your $200 million. But just as we think about the potential for consumption in Rhode itself. So if you can give us the Rhode consumption number relative to the $212 million that they had prior to the deal.

Andrea, so first, to answer your question on consumption, even post the price increase on August 1, we've still seen consumption hold strong, which is very encouraging to us. And as I said, we've even seen it a little bit better as we've gone into Q3. So we feel great about the core business consumption. From a Rhode standpoint, we said $200 million is going to be the contribution on the year post acquisition.

But on an annualized basis, Rhode is expected to be $300 million in net sales. That's a 40% growth on a year-over-year basis. And what you're picking up there, Andrea, is the $200 million, like I said, is post-acquisition. But then you're also picking up the $40 million from Q1 that was disclosed in the pro formas.

And then the delta there, about $57 million is related to net sales or shipments that went out prior to us acquiring Rhode in Q2. So you'll see in our Q that's filed tomorrow, you'll actually see on a pro forma basis what Q2 would have looked like all in with Rhode for a full quarter along with e.l.f. results. You'll see that Rhode was about $110 million in Q2 from a net sales standpoint.

Sorry, just to understand the $110 million would be the difference, as you said, like the $57 million plus the actual consumption?

No. So the $57 million would just be their net sales prior to acquisition in Q2. So that's going to be a mix of D2C consumption plus shipments to Sephora. Those are initial shipments to Sephora.

Okay. And then going -- just to clarify what you just said, like August and Mandy, it is super helpful when you said, okay, it picked up even towards the third quarter. So what was the consumption in August and September and how we should be thinking relative to the 10%? Is that similar to 10% in August or that took a little bit of -- because the price increase on itself, $1 over $7.50 is a pretty large number. So I was hoping to see what the volume decline was if you were not seeing consumption accelerated even more than the 10%.

Yes. So in the August and September time frame, again, as Tarang mentioned, it took some time for retailers to roll that pricing out. And so you're right, on a dollar increase is about 15%, 16% growth from an AUR standpoint. And that's what I'm saying as we've gotten into Q3, we have seen that consumption be a bit stronger than that 10%.

And so we're pleased with that our consumption is actually holding up given that we took a broad price increase, $1 across the entire portfolio. We have not done that before and are pleased that our consumption rates continue to hang in there.

And our next question today comes from Ashley Helgans with Jefferies.

This is Sydney on for Ashley. First, just starting with the guide. Can you just share a little bit more about your expectations for the category that are informing that kind of core brand growth expectation? And then when we think about Rhode, I would love to hear a little bit more about how you sort of are thinking about the balance between wholesale versus DTC.

It looks like with the birthday launch, you're still doing some drops that are exclusive to brand.com, but would love to know kind of how you're thinking about that mix between the 2 channels long term.

Sydney, this is Tarang. So on -- our expectations for the category, we're pleased with what we're seeing in the category in the quarter, we saw the category up 2%, which is pretty consistent with the level that we've had for the last decade. So we're pretty much assuming similar rates of category growth for the balance of the year.

And then in terms of Rhode, our strategy is a strong focus both on our Sephora launch, both in-store as well as online and our own DTC business. And the specific strategy on DTC is having some of these exclusive windows of -- for our DTC site. We see it makes a real big difference in terms of the impact we see on sales. So we expect strength in both wholesale as well as DTC.

And again, the brand is off to a phenomenal launch at Sephora, continue to see strength in DTC and are excited next week to introduce Rhode into Sephora U.K. There's already a lot of excitement built up for that.

And our next question today comes from Anna Lizzul with Bank of America.

I wanted to go back to the question on the EBITDA guide. It looks like in fiscal Q2, margins were slightly better than expected on both gross margin and EBITDA. But the guide, as you mentioned, much lower due to the higher marketing spend.

And I understand there is timing shift, but I think the expectation was that you would be getting some leverage on this line item in the future. Should we be expecting this high rate of marketing spend, excluding the timing shift moving forward? And then also, how are you allocating the spend between your brands now, especially with Rhode and the further expansion internationally?

Anna, great to hear from you. So on EBITDA for the year, so as we look at that, we are outlooking a 2% to 3% growth on adjusted EBITDA for the full year. From an EBITDA margin standpoint, it's somewhere in the 19% range, so maybe 300 basis points lower than where we were last year. And to your point on the marketing, 24% to 26% on marketing is what we had outlook last year, and it's consistent with where we are this year.

So we've actually not taken that rate up. It's consistent on a year-over-year basis. And just for the second half, you're going to see that be a little bit more outsized just given the timing of that spend. I would say on the G&A side, on the non-marketing SG&A side, I do think that over time, we can get back to leverage there as well. We are continuing to be in growth mode. We're continuing to invest in our team and infrastructure.

And when I say team and infrastructure, that really means making sure that we have the right resources here in the U.S. and internationally to support the growth that we expect to see. And then also making sure that we're showing up in the right way from a visual merchandising standpoint as we expand our distribution footprint, investing behind that as well.

And so that's really what's driving some of that non-marketing SG&A this year as well. And so overall, again, given the tariff headwinds that we're facing, a 3,500 basis point tariff headwind this year, feel like we're net out in a pretty good spot from an EBITDA standpoint, showing growth on a year-over-year basis.

Okay. Great. And if I could add on a follow-up. In terms of pricing, we've been hearing from some retailers that maybe they were disappointed that e.l.f. actually led the pack with pricing recently and that others have followed in the space. And how do you think about your value proposition here and just the fact that maybe others have attempted to follow on the pricing side?

Anna, this is Tarang. I'll take that one. I would say on the pricing front, we've always led pricing. We've only taken 3 price increases in our history. And in each case, it's only been because of external factors. Our preferred approach for margin progression is innovation mix, and that's how we've successfully grown our margins over time. So on pricing, we expect it to be first because we've always been first. And then over time, people will follow.

We haven't seen as much -- as many follow yet, but we have heard from many of our retailers that others plan to. So we feel confident in our overall value proposition. I mean our average unit retails, as we said after pricing, $7.50 compared to $9.50 before pricing for the legacy mass players and around $30 for prestige. Even after the pricing, 75% of our portfolio is still $10 or less. So we feel that value proposition is strong and will just get stronger as others follow the pricing.

And our next question comes from Peter Grom at UBS.

A couple of questions. Maybe just -- I'm kind of curious maybe to follow up on the EBITDA and EPS guidance a little bit. I think we and probably a few others are just trying to understand why there's not a bigger benefit from Rhode, especially just given in the pro forma financials you outlined that would suggest there was some solid accretion. So just kind of what are you assuming in terms of the EBITDA or EPS benefit as it relates to Rhode in this guidance?

Peter, so we still expect Rhode to be accretive from an adjusted EBITDA margin standpoint. To your point, they have had some incredible margins, but there are areas that we want to invest behind. Team is one of those. We want to continue to build out that team. And also in marketing, that's another key area where we see an opportunity to invest behind Rhode.

And so overall, very pleased with what Rhode is contributing to this year. And as a reminder, this is our first time issuing guidance this year. So this is your first view into how we see things playing out. And again, with the tariff headwinds that we faced overcoming those and actually looking at having a flat gross margin as we go into the second half and then balancing that with continuing to invest behind the growth opportunities that we see, $302 million to $306 million in adjusted EBITDA, we feel is a solid place to be.

Great. And I guess just a question on international. I think you mentioned -- I forget whose question it was, but I think you mentioned it was up 2% in the quarter. So what's the underlying consumption growth outside of the U.S.? I know there's the sell-in dynamic, but how should we be thinking about the right underlying growth rate for international ex the shipment dynamic from here?

Yes. So international is going to continue to be a growth opportunity for us. As we think about U.S. and international and even on an underlying basis on the organic business, we expect to see growth out of both the U.S. and international on the year. And so we will have these moments from quarter-to-quarter where you're cycling a space expansion or something like that.

But the opportunities remain. I mean we've talked about a number of international launches that still are in our plan for this year, whether it be Rossmann, Poland or Sephora in the GCC countries. We talked about Sephora Australia for Naturium. I mean there's a number of VM in Germany we'll be going into later this year. Just a number of opportunities still remain on the international front. And so we expect growth there as well this year.

And our next question today comes from Bonnie Herzog of Goldman Sachs.

I guess I'm hoping for a little more color on your expectation for the slow organic growth in your business this year ex Rhode. You didn't provide guidance earlier. So I guess I'm curious if your outlook for top line moved lower since the beginning of the year on your core business? And if so, why?

I mean maybe could you guys touch on some of the key innovations that you have this year and whether they've -- I don't know, maybe fell below your expectations? And then I guess it does sound like consumers have absorbed your pricing. So elasticities coming in maybe in line with your expectations or better. I guess, ultimately, I'm struggling with the expected slowdown on your core business, even considering lapping the strong space gains that you called out from last year. Any color would be helpful.

Bonnie, great to hear from you. I would say -- I would start with consumption. On a year-to-date basis, our consumption is still quite strong, 10% on a year-over-year basis and even stronger as we start Q3. So we're feeling great about the consumer and how they're engaging with e.l.f. and they continue to choose e.l.f.

From an innovation standpoint, our fall innovation is strong, growing faster than last year's fall innovation. That's something that we didn't see in spring. As we've talked about, our spring innovation was behind last year, given that we were cycling the exceptional launch of our lip oils.

And so as we've come into the fall, we actually have seen fall outperform fall of the prior year. So that's also a good signal. On the whole of it, the main driver of why you're not seeing our second half outlook match up to that strong consumption we're seeing is because we're cycling that space expansion. Again, as 11,000 doors in Dollar General and a 50% expansion type expansion related to Target, that's really the primary driver of that disconnect between the consumption and the shipments outlook that we've given.

Okay. Just maybe a quick follow-up. So should I assume for the full year on core business, your consumption and shipments should essentially even out? Or do you expect, I don't know, consumption to remain stronger than shipments for the full year? Just trying to think through that.

Yes. So for full year '26, we've outlooked so 3% to 4% organic growth on the business, which is below the consumption rates that we're seeing right now. Again, it goes back to cycling that space expansion in the base over time. So it may take a couple of quarters to get there. But over time, shipments and consumption do net themselves out. And so yes, that would be our expansion that over time, we do see those numbers kind of marry up a little bit better.

And our next question today comes from Susan Anderson at Canaccord Genuity.

I guess maybe just touch on Naturium a little bit and how we should think about or how you're thinking about the growth of the brand going forward. I think the consumption data has slowed a bit recently in the U.S. So just trying to think about the cadence of new product rollouts there as well and then also new space for the brand, including internationally.

And then not sure if you can give any color on Rhode and how you're thinking about kind of the longer-term margins for the brand, especially as you increase marketing spend for the brand.

Susan, this is Tarang. We feel great about Naturium. We're seeing great momentum on Naturium. We actually have seen a pickup in the growth rates on Naturium, both as we've taken a look at our target rates, but also our [indiscernible] Beauty and how strong Naturium is there.

We mentioned the great launch we just had with Sephora in Australia and to pick up the space in boots. And so overall, we're seeing really good momentum for Naturium continues to build, and we're pleased, particularly as we put that awareness campaign on. We saw really good consumer response to that.

And then on the Rhode margins, we haven't given a longer-term outlook on the margins other than to say we expect those to be accretive to our EBITDA margins as we go through. Rhode is a beautiful business, very strong margins. We will invest behind the brand, as I mentioned earlier, but still expect those margins to be accretive.

And our next question today is from Oliver Chen at TD Cowen.

On the organic growth for the second half, the 2% to 5%, is the assumption that pricing is a double-digit benefit and then volume offsets that to be negative given the tough compares? And then secondly, on Rhode, I would love your view of the inventory levels currently at Sephora.

I know it's been very successful. So how have inventory levels in terms of product availability been? And then as you look forward, there's a limit on the number of SKUs and tons of opportunity. What's on your Rhode map for that as well as -- our assumption is that it's Sephora for 3 years plus. Any thoughts or guidance there in terms of what you see happening with the footprint?

Oliver, so I'll answer the first question. On our organic growth in the second half of the 2% to 5%, yes, you're thinking about it the right way. Pricing will be a benefit. And then volume, we are expecting to be lower than last year, again, cycling those shipments, which would have been higher volume.

And Oliver, on your second question regarding Rhode inventory, I'm extremely pleased with the work the team has done to be able to keep up with the exceptional consumer demand we've seen. Our operations team has done a terrific job of making sure Sephora has enough inventory. The biggest challenge is getting that inventory on the shelf.

And so similar to what we've done with e.l.f. in the past, we're partnering very closely with Sephora to make sure that they're replenishing those shelves more frequently just given the unprecedented demand that they've seen themselves. And so we feel really good about where we stand in terms of our ability to support the business and the demand that we see, and we'll continue to work on that.

And our next question today comes from Steve Powers of Deutsche Bank.

A couple of cleanups and then a question. So first cleanup is just, I think the 2% international growth would have included a little bit of Rhode. Just curious if you could call out the magnitude of that, number one.

And number two, Mandy, there's been a lot of questions on the back half shipment headwinds from the space expansions that you're lapping last year. Maybe just if you could zero in on the magnitude of that and if there's any differential 3Q versus 4Q, that would be helpful.

And then the question I had was around Rhode. You talked about the structure of the P&L and the accretion. But I'm curious on the gross margin line as that business moves from DTC to a hybrid DTC and wholesale revenue base, what impact does that have on the gross margin relative to the historicals that we've all seen?

Steve, all right. So the 2% growth that we saw in international, that would have included some Rhode volume as well. We've talked about Rhode having about a 20% international sales outside of the U.S. And so that would have been included in that 2% growth for Q2.

On the shipment headwinds, like I've said here, the 2% to 5% that we're outlooking on net sales versus the consumption rates that we're seeing today, the primary disconnect between those consumption rates and the shipments that we're calling out, the net sales outlook we're calling out is cycling that volume. I would say that's the primary contributor there.

And then on the Rhode P&L, from a gross margin standpoint, yes, we expect to see the gross margin come down as they transition more into a wholesale mix, but still the gross margin is accretive. It's accretive and our outlook as we stand today, it's already baked in, still accretive to where e.l.f. is positioned today.

And our next question then comes from Rupesh Parikh with Oppenheimer.

So I guess just going back to adjusted EBITDA margins, your guide implies around 19.5% this year. Is there a way to think about like the steady-state margins, I guess, going forward beyond this year to understand some of the temporary headwinds because you guys were in that 22% plus range prior to this fiscal year.

Rupesh, so this is just our first quarter getting back to issuing guidance. And so we don't have a longer-term algorithm out there of what to expect on EBITDA margins. But what I can tell you is that we have had a track record of improving those margins over time. And I talked a little bit earlier about leverage in our non-marketing SG&A over time.

We're getting our gross margins back to a better place as we go in, to the second half and pricing kicks in. We have the 45% tariff in place now versus as we get into next year, the average 60% that we'll be cycling through. So there are some things that are working in our favor as we look out longer term that would enable us to improve those EBITDA margins over time.

Great. And then my follow-up question, just on Rhode, strong initial guide. Just curious how that -- I think you mentioned 40% pro forma growth for this year, how does that compare versus your initial expectations for the deal?

We're very pleased with the performance that we're seeing out of Rhode. I mean, Tarang talked about it earlier, 2.5x better than any launch Sephora has had in North America. I mean it's really a fantastic brand. We're so happy to have them as part of the e.l.f. family and look forward to continuing to drive that growth on the Rhode ahead.

Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to e.l.f. Beauty's Chairman and CEO, Tarang Amin, for any closing remarks.

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

Thank you. That concludes today's conference call. You may now disconnect your lines, and have a wonderful day.

Thank you for joining us today to discuss e.l.f. Beauty's First Quarter Fiscal '26 results. I'm KC Katten, 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 Tarang.

Thank you, KC, and good afternoon, everyone. Today, we will discuss our first quarter results and our approach to fiscal 2026. I'm proud of our incredible e.l.f. 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 rhode, 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 #1 unit share brand with approximately 15% share and the #2 dollar share brand with approximately 13% share, more than double where we were just 3 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 1. This is only the third price increase we've taken in our 21-year history.

With 75% of e.l.f.'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 #1 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 tracked 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 an 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.

[Presentation]

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 5 years. As compared to the 22% share and #1 ranking we have in face, we have a 13% share in the #3 ranking in lip and a 9% share in the #4 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 7 of the top 10 most viewed lip gloss videos on TikTok featured TikTokers customizing their own jumbo Halo Glow lip gloss. We turn fandom into innovation at e.l.f. speed. From insight to action in under 4 weeks, we launched a DIY Halo Gloss kit exclusively on TikTok Shop that sold out in under 24 hours.

Turning to skin care. Skin care 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 2 of the fastest-growing mass skin care brands with e.l.f. SKIN and Naturium 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 eye ] [indiscernible] vitamin CE priced at an incredible value of $16 compared to a prestige [indiscernible] at a $185.

[Presentation]

e.l.f. skin is cultivating cultural relevance with the premiere of [ sun hinge]. We reimagine SPF education with a comedy roast to 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.

[Presentation]

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 U.K., our largest market outside the U.S., e.l.f. Cosmetics outpaced category growth by 3x in Q1, increasing our rank from the #4 brand to the #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 of [ CrowdVat], the #1 beauty retailer in the Netherlands and Belgium. e.l.f. quickly ascended to the #1 brand in Belgium and the #2 brand in the Netherlands.

We're excited for the international expansion we have planned this fall. e.l.f. is launching with Rossman in Poland and Sephora in the 6 countries of the Gulf Cooperation Council. Naturium is also expanding into additional boot stores in the U.K. and launching with Sephora in Australia. For context, 6 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 in [ new ] new markets. The acquisition closed yesterday, and we're thrilled to officially welcome the talented rhode team to the e.l.f. Beauty family, a breakthrough high-growth beauty brand founded by Hailey Rhode Bieber. The acquisition closed yesterday, and we're thrilled to officially welcome the talented rhode 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 3 years since its founding, rhode has seen exceptional growth, achieving $212 million, rhode 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 rhode brings together 2 like managers, 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 2 areas: first, to accelerate rhode's brand awareness. For context, roads aided awareness is 20% today in the U.S. half the level of other premium skin care brands, which average 40% or more awareness. Second, we plan to leverage our deep retail expertise and help rhode expand their distribution footprint. The team is focused on executing its launch in Sephora and in a subset of stores before scaling.

Given rhode's breakthrough DTC success and Sephora's belief in the potential of the brand, rhode 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 e.l.f. Beauty's global presence with Sephora, building upon the successful partnership we've had since launching e.l.f. 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, Tarang. 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 115 basis points compared to prior year. The year-over-year decline was driven by incremental tariff costs, partially offset by favorable change 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 7 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 compared to Q1 last year, which included discrete tax benefits related to stock-based compensation.

Moving to the balance 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 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 [indiscernible] a year ago.

Subsequent to quarter end, we closed on our acquisition of rhode. 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 e.l.f. Beauty common stock issued directly to the equity holders of rhode. Our liquidity position remains 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 e.l.f. 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 9 and May 13, we were subject to tariffs at the 170% level. As of May 14, 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 3 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 rhode for about 2 months of Q2.

Note, we are not benefiting from the rhode sell into 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 tariff [ COGS], the timing shift in marketing campaign spend and the inclusion of rhode 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 rhode to our growing portfolio of disruptive brands. With that, operator, you may open the call to questions.

[Operator Instructions]. The first question today comes from Susan Anderson with Canaccord.

[ Alex Lake ] on for Susan. A question on the tariffs. Can you talk about how much inventory might be trapped in 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?

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 -- is expecting more of that flow through in Q2. So I would expect to see kind of a lower gross margin quarter-over-quarter as we go through.

And then just a follow-up. So the first half EBITDA margin guide that kind of implies a 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 rhode acquisition, maybe some incremental investment?

Yes. So that first half EBITDA margin that we called out, the implications on Q2, really driven by 3 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 rhode 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 Mohsenian with Morgan Stanley.

I was just hoping, Mandy or Tarang, 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 come and hold without rhode? I think, Mandy, you mentioned that rhode 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're thinking 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 for the question, Dara. So on your first question, we have not broken out what's else versus rhode. We just wanted to acknowledge that for Q2, we will have vision of rhode into our financials. And so that will help to drive Q2 higher than what we saw in Q1.

On the e.l.f. business, in particular, we're really pleased with what we're seeing on the e.l.f. business. One, I would say our fall innovation continues to perform well. We talked about pulling our melting lip bumps 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, call it 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 3 segments: eyes, lips and face. And so feeling very good about the e.l.f. business, the underlying e.l.f. 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, [indiscernible].

Okay. Great. And then just as a follow-up, rhode 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, 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.

Yes. 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 rhode. They had their [indiscernible] 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 rhode. 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.

The next question comes from Olivia Tong with Raymond James.

Great. 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-rhode results could be down year-over-year? And I guess could you tell us in your view, is that on the table for Q2?

So as I said, Olivia, we still feel great about the e.l.f. business that includes our U.S. core business. The dissertion from a Nielsen standpoint, again, is really driven by us starting to cycle a full fall in the base. So we had a benefit earlier on of launching that our melting lip balms earlier. And so now we're still seeing fall overall positive. So that is fantastic for us.

I would say for -- on an ex rhode basis, there is not a scenario that we're contemplating as we talk about the better than 9% that would have e.l.f. 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 e.l.f. business.

Great. That's super helpful. And then can we talk about the further expansion into Sephora, which sounds great. Mexico, now Middle East, so [indiscernible] 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 the lineup that's going into 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.

Oliver, this is Tarang. We're extremely excited about our expanding partnership with Sephora. Let me just back itself a little bit. It was last year that we entered our first with the e.l.f. brand, our first for market with Sephora Mexico is one of the best launches they've seen. I think we've continued to maintain a top 3 position across all of Sephora in Mexico. And one of the things that they really liked about the e.l.f. launch is we brought in a whole new consumer set, are younger, more diverse, engaged consumer. And so they really like that dynamic.

So we've been talking to them about a number of different markets. We're quite -- obviously, the biggest thing that we're excited about is rhode's launch into all U.S. and Canadian Sephora doors in September, followed by the U.K. end of year. We're also excited about entering the sixth [ Gulf ] cooperation [ console ] countries with e.l.f. 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 launch, again, similar to Mexico, we're expecting a big launch there.

And then last but not least, Naturium entering Sephora in Australia, we feel really great about too. So we can see potentially additional Sephora markets over time. And as we confirm plans, we'll talk about it. But overall, I feel really good about the expansion with Sephora.

The next question comes from Andrea Teixeira with JPMorgan.

I wanted to follow up on the answer regarding the U.S.-based business. Mandy, you mentioned that it's been growing about 5% for the U.S. I was curious to see if what is the exit rate in the quarter? And then also with the price increase, the $1 over your average price of $650 million is roughly -- it's a mid-teens price increase and understandably, you're making some -- we'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 optimistic given how the consumer has been behaving?

Andrea, it's great to hear from you. So on the U.S. 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 modeled from an elasticity standpoint. But with these increases just going in on August 1, we're still reading how the consumer will respond to that. It will take a couple of weeks for that to fully roll out within retail. And so that is something that we're watching for.

And I also acknowledge the consumer overall sentiment right now, as you've heard from another of consumer companies, there's continuing to be choiceful with how they're spending. I think from our perspective, the great thing is even with this price increase, 75% 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.

The next question comes from Mark Altschwager with Baird.

Just 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?

Mark, this is Tarang. 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 3 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 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.

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 [indiscernible] took 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 a wide range of outcomes on tariffs. We're watching to what happens on August 12, 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.

The next question comes from Oliver Chen with Cowen.

Mandy, within the U.S. e.l.f. brand, what channels or partners have been stronger or weaker in terms of what you're seeing in the U.S. market and the choiceful U.S. consumer. And that as we think about rhode, which is very exciting, how -- what is your -- what are your thoughts on international 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 rhode.

So Oliver, great to hear from you. On the U.S. e.l.f. brand, from a channel standpoint, we had growth in our brick-and-mortar channels, our core retailers as well as in e-commerce. And so 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 -- yes. Sorry, go ahead. The channels that were -- which ones were weaker, which ones were less positive to those if you could share with that with us as well.

Yes. We've just not breaking out that level of detail other than to say 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 rhode. 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 Hailey's followers outside the U.S., but that business still only has about 20% outside the U.S. So we have massive runway for growth for rhode similar to the pent-up demand that we see for e.l.f. every time we go into a new country.

The next question comes from Peter Grom with UBS.

So I wanted to just ask on rhode -- trying, clearly, a lot of growth for the brand in the last few years. But you touched on this in response to Dara's question that the brand is performing well. But we've seen some pretty exponential growth over the last few years. So as we think about modeling the brand, getting that the sell-in, in Sephora isn't going to be in your results.

But maybe just could you help us understand bigger picture 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?

Yes. Peter, we haven't disclosed the specific growth rate on road other than to say it went from $0 to $212 million in 3 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 -- we're going to continue to accelerate similar to how we've accelerated growth on Naturium, getting Naturium into to beauty, into boots, into shoppers and continue to expand.

The other thing we're going to do on rhode is we're going to take since it is quite accretive. We are going to invest back into more marketing to drive that awareness, aided awareness is 20%, which is great for a brand that's just 3 years old, but still less than half what some of the prestige skin care brands are. And then certainly, I mentioned executing Sephora well and then they have a very strong innovation program.

So really bullish on rhode and what we can achieve there. And then in the commentary of doubling the business, we're talking about the overall health 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. And Mandy, I just wanted to ask on margins. Just in the context of the weaker second quarter, and I get tariffs and elasticities remain a wildcard here. But can you maybe just help us understand how you would anticipate margin performing in the back half of the year?

I guess, when you look at the second quarter, and what cost could be transitory, what could say -- 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.

Yes. 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 in place until August 1. We are continuing to work on the other 2 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 get 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 that margin -- gross margin pressure in Q2 mainly because we're flowing through those tariffs without a lot of the offset yet firing.

Next question comes from Ashley Helgans with Jefferies.

This is Sydney on for Ashley. 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.

Yes. 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, certain 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 call innovation that we've launched. We've talked a lot about the melting lip balms, where we also have our skin tint with SPF 50 that you heard on the call, [indiscernible] saying 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 [ port ] 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 Securities.

Just kind of as we look at 1Q versus 4Q, we were back several months ago, the thought was kind of January, February, there was a little bit of 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 there was just a -- obviously tougher comps. As you look at the acceleration in these past 3 months in the U.S., maybe you could give us a little color on what changed? Did the new batch of Holy Grail 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 3, 4 months?

Yes. Bill. So I would say that you're right. Q4, we were up against a lot of things. We talked about the social chatter around beauty was down. You had the wild fires in L.A., you had pickup 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 helps that. And so we are feeling like e.l.f. is in a better place, as you saw, we 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 up on innovation. I mean, do you feel like the spring innovation just took a little bit longer and to -- and now is taking off or we just move 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, 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.

The next question comes from Rupesh Parikh with Oppenheimer.

I'm going to ask 2 questions. I'm not sure if you're going to answer. I'm going to try since I've been getting e-mails on it. So just for Q2, for rhode, is there any way to help us understand like the revenue contribution for that business? And then also for rhode, I know EBITDA margins are expected to be down in Q2, but is rhode expected to be diluted to your Q2 margins?

Rupesh, great questions, but detail that we have not provided overall. Other than to say that we feel great about rhode, we believe over the longer term, as we talk about a full year and thinking about how rhode 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 color. And then just on international, 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?

Yes. 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 sell-in than we do this year. And so I think that still holds true as we look at Q2 and just thinking about our first half versus second half dynamic.

Other than that, 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 e.l.f. and Nuturium side of the house as well as the expansion -- further expansion and boots on Nuturium and just continue to expand in Poland with [ Rossman ] and so very pleased with what we're seeing from an international standpoint.

The next question comes from Steve Powers with Deutsche Bank.

Great. Maybe 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 2 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 kind of 2 months of rhode sales also gross margin accretive. So just maybe a little bit more context of puts and takes in 2Q gross margin, if I could.

So I think you've got it right, Steve. We are taking that 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 rhode coming in to the fold as well.

And so those are 2 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 what happens next week with tariffs. Do we maintain at this 5% 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 earlier 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 think you mentioned last quarter that at the 30% incremental tariff rate, it was about a $50 million annualized hit to COGS.

That's me -- strikes me as like a 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 volumes go negative, all else equal at that 30% rate, you should be pricing to maintained, if not see a little bit of coverage there and maintain gross margin. Is that math or logic wrong?

Yes, Steve, you got it right. We talked a 30% incremental is about $50 million. The assumption, we're always more conservative on how we model elasticity. Now last 2 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 [ except ].

The next question comes from Anna Lizzul with Bank of America.

I was wondering how you're thinking about the longer-term strategy here with rhode. There's a limited number of products across cosmetics, skin care, 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 product here and the categories where you compete.

One of the things, Anna, we go about rhode 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 rhode.

And so we we'll approach it is that same thoughtful approach Hailey has taken and the team have taken on innovation, we'll continue to do that. You saw a couple of recent launches from rhode. There'll be additional launches as we go forward, but continue to make sure that it matches the [ aesthetic ] and focus of the brand. So I think 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 e.l.f. Beauty, you're going to continue to see game-changing innovation on rhode, and we feel really great about it.

The next question comes from Jon Andersen with William Blair.

Tarang maybe, could you -- I don't -- I apologize if I couldn'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 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, all innovation earlier in the year the request of customers, et cetera. Does that create any kind of an air pocket in the pipeline over the second half of the year? Or how to think about that?

Yes. 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 10-K, you saw crept into one of our top customers. And so very pleased with that performance.

And I'll take the next 2. 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 business is 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 3 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 2% 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 drop, 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've got so many requests from our community of wanting and wanting that 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 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.

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 e.l.f. Beauty for delivering another quarter of industry-leading results, and I'm thrilled to officially welcome rhode to the e.l.f. Beauty family. We look forward to seeing some of you at our upcoming investor meetings since speaking to you in November when we'll discuss our second quarter results. Thank you, and [indiscernible].

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

Okay. Welcome, everybody. For our next session, I'm thrilled to welcome for the first time ever, the e.l.f. Beauty company to our conference. And with us today, Chairman and Chief Executive Officer; Tarang Amin. Tarang, nice to see you here.

Thank you for having me.

We're going to use the entirety of our time for Q&A. And we will just dive right in. So Tarang, I think as I said, your company is new to the conference and arguably newer or maybe at least less familiar to many of many European investors. So I guess first question, just who is e.l.f. and what do you think differentiates it most from the rest of the beauty industry?

Sure. So again, thank you for having me. e.l.f. was founded 21 years ago with a revolutionary idea at the time. This is 2004. They set out about setting -- selling cosmetics over the Internet for $1.8. Everyone thought the founders are crazy. This is pre-iPhone, you can sell cosmetics over the Internet. You certainly could make money at $1, but they figured it out.

While we've migrated over time at different price points and different channels, that core is still with us. Our mission is to make the best of beauty accessible to every eye, lip, face. e.l.f. actually is an acronym for eyes, lips and face, and we make cosmetics and skin care. And what we're really known for and what differentiates us is our ability, our unique ability to have prestige quality and take inspiration from our community and introduce those products at a much better value. That value proposition has really propelled the business for the last 21 years. We just completed our 25th consecutive quarter of net sales and market share growth in the U.S. We're one of only, I think, 5 public companies -- consumer companies in the U.S. out of 546 that's been able to grow sales for 25 consecutive quarters averaging at least 20% sales growth.

So we're known for high growth, core differentiators, again at our value proposition, our POWERHOUSE innovation, again, that unique ability to take prestige quality and introduce it at incredible prices and our disruptive marketing engine. And those have really propelled the business for a very long time, really out of our 21 years, I think all but one have been pretty strong growth.

Great. And I think one mystery reaction is a low price kind of mass market. But positioning has typically been challenged and very competitive, is e.l.f. path to growth, share gain within that Mass Beauty segment? Or do you believe e.l.f. can redefine the category and enable to take share from mass beauty and prestige?

We're definitely a disruptor in the category. And I would say, while we've grown share again for 25 consecutive quarters against the mass players, we're now the #1 unit share brand in the U.S. #2 dollar share brand, but with clear line of sight of clear leadership. I think what really differentiates e.l.f. is our ability to expand different categories. So I'll give you one example. We introduced many a few years ago, our Poreless Putty Primer. There was a prestige item that was selling for $56. We saw an opportunity. We studied it. We put always put our e.l.f. Twitch on. We never directly copy a particular product. .

We introduced our Poreless Putty Primer instead of at $56 at $9. And then we track the prestige item over time. We saw it continue to grow. There was a demand -- a certain niche of consumers who love paying $56 for that primer but the vast majority of consumers can afford $56 for a primer. In fact, I mean, I think around the world, most consumers live paycheck to paycheck. And so this ability of having access to a category that never could have access. We saw the prestige item continue to grow. We sell 9x the number of units as a prestige items. So it's our ability to actually expand the category. We certainly are growing share and have a great position there. But the more important thing is our ability to bring millions of consumers access to the best of beauty they previously couldn't.

And you've described the company as a 20-year-old startup. Lots of focus on speed and agility as that example, I think, demonstrates. Can you talk about how that manifests a bit more in your execution? And how you keep alive that culture? And maybe also touch upon the digitally native routes and how that plays into it?

So I'd say -- I always say our biggest competitive advantage is a passionate team of owners in a high-performance team culture. We're unique in our space in that we grant every single employee equity every single year, strongly aligning their interest with the long-term interest of our shareholders. And we put them in a culture that really focuses on developing passion relationships, giving pinpointing specific feedback to help the team succeed strong mutual accountability. And it's a -- it's led to that along with the overall demographics of our workforce. 74% of our employee base is women, 76% are Gen Z and millennial, 44% are diverse. And the reason why that's important is they absolutely reflect the consumer base that we -- are the community that we wish to serve.

And so it gives us a huge advantage in terms of speed, both that culture, actual owners of businesses and the ability to actually move it something we call e.l.f. speed. So our time from initial idea to selling online from concept to selling online is around 26 weeks as compared to a few years for a number of our competitors. We have a unique innovation engine that's integrated with our supply chain that gives us this ability to really jump on it.

And then the digitally native roots have always been with us. Our main engagement model from a consumer standpoint is all digital. We're not a traditional beauty company in terms of big TV ads, lots of print and billboards. Our approach is digital and we live where our community lives and it's allowed us to really have strength across multiple demographics, and -- which I'll touch on in a minute here.

Yes. I mean -- so taking a step aside was tariffs, a clear topic of conversation. It's definitely this week here at the conference. Can you talk about your tariff exposure the supply chain is very rooted in China. The mitigation strategies around that and how that has played into your '26 planning?

Yes. So I would say we've been subject to tariffs since 2019 in the U.S., the 25% that were imposed by the First Trump administration. And the way we dealt with that is really a balanced plan. Back in 2019, almost 100% of our production came out of China. We took pricing $1 up on 1/3 of our lineup. We had cost concessions, supplier concessions from our suppliers, FX helped us. And we actually, in that period, grew margin in even in the face of 25% tariffs. We took a second round of pricing in 2022 with all the inflationary pressures many companies are facing post pandemic. And we just recently announced last week, we announced another round of pricing $1 up. Now we have a phenomenal value proposition. Our average unit retails in cosmetics around $6.50 or legacy mass cosmetics players are around $10. Prestige brands are well over $20. So we do have a great pricing umbrella, and we're quite disciplined in terms of pricing. We've only taken 3 price increases in the 21-year history of our brand. Yet we've been able to grow our gross margins from the low 40s to over 70%, primarily through innovation mix. So we like the balance plan that we have. It's a combination of pricing that we're taking, supply chain optimization, as I mentioned, 5 years ago, 100% of our production was in China. Today, it's about 75%. By the end of the year, it will be even lower than that.

But importantly, we're committed to the supply chain we have. We have a massive competitive advantage when it comes to our supply chain in terms of having the best combination of quality, cost and speed in our industry. And so we want to be quite thoughtful in terms of how we continue to optimize. And in fact, our optimization on supply chain has less to do with tariffs and more to supply the rapid global demand that we see for our brands.

And then the third thing is continued business diversification. We've -- both in our brand portfolio, but also international is the fastest-growing part of our business, about 20% businesses outside the U.S. today, and that's rapidly growing in terms of mix. So we're going to use that same balance plan.

And the last thing I'd say, back to pricing is we're highly transparent with our community. So when we take pricing, we actually announced it on social to our community. We're facing these cost pressures. We're going to absorb many of them, but we're going to pass on a dollar, we get 98% positive consumer sentiment. I've been in the consumer space 34 years. If you told me that 98% of your consumer base would be positive to you taking pricing. I think a lot of it is we take very seriously our ability to deliver a superior value proposition. Our community knows it, and that's allowed us to be able to successfully have pricing over time and have that balance spend.

And while you haven't given guidance for '26, the last couple of price increases last 2 price increases, I think, came with very limited and certainly less than expected elasticity, correct?

No, that's right. And I think it's that disciplined approach. We take value very seriously. We've used innovation mix as a way of driving margins up. And so our everyday value is still a superior proposition. And so we know we have pricing power as a brand and -- but we're quite disciplined in terms of when we take that usually only for external levers.

Yes. And clearly, the tariffs the tariff could be anything, right? Which tariff moves around. But I think at the current rates, you called $50 million headwind on COGS, which is about a 13% headwind. The $1 price increase on the total portfolio, inclusive of skin care, by our math, about a 14% increase. So is the pricing strategy to protect margin or just to offset the dollar cost in...

Like I said, it's a balanced plan. So we never look to pricing to fully get to necessarily to the margin rate that you have, have because we do have the other levers and continued supply chain optimization and business diversification. And so I think when we're -- once we have greater clarity on what the long-term tariff environment is, we'll gladly provide guidance and lay all that out. .

Great. Okay. So as you mentioned, innovation critical to e.l.f. success. What is it e.l.f. innovation process? And how is it differentiated?

Yes. So we have a differentiated innovation process, the unique ability of taking inspiration prestige or the best products or what our community demands, and bring it to market at a very fast pace with a superior value. I'll describe one example. Our community will come to us with what they want. And they will often reengage 2-way conversation on social, a couple of years ago, they came to us and DoR has made these lip oils for more than a decade. But for some reason, in the last couple of years, they took off virally, and the community will be like, hey, e.l.f. help us out. We love this product, but we can't afford $38. We'll study that product. And we'll basically say what do consumers like. They like the glossy finish. They like the pigmentation on their lips, who will also study what don't they like. And many -- for many consumers, that product dried out their lips.

The applicator was quite small. Lip oils something you have to apply throughout the day. So when we introduce our lip oils, a completely different hydrating formula that solve the thing that consumers were complaining about with a much bigger do foot applicator, still same kind of prestige quality, amazing payoff, glossy finish. And instead of the $38, we introduce ours at $8, right?

If you introduce that product, community has been wanting it it goes viral right away. In fact, the lip oil is probably our biggest product launch ever. And we can do this over and over again, basically taking consumer input as well as our innovation team. They're constantly scouring the earth for different ideas. Like I said, our consumers -- I mean our employees represent the community so they're highly in touch with what are the trends, what are the things that are going to come out.

And then the other thing about our innovation approach is we're not what many cosmetics companies kind of do one and done. They launch something, they to launch something else, and they end up doing a lot of SKU proliferation. For us, we build these growing franchises. If you look at our power group franchise, our Halo Glow franchise, a number of our core franchises, every one of them grows every year because when we put innovation, it kind of lifts the entire franchise. So it's a much more franchise approach, a bigger focus on productivity and SKU efficiency.

And so that's the combination. We have a great -- I think, through our innovation, we have the #1 or 2 position in 19 segments of the cosmetics category. Highly defensible, very high share positions in those and the ability to conquest some of the bigger categories we have a lower share in it through that continued innovation approach.

You've talked about this in the past, but just how do you leverage experiences online in DTC to increase the odds of new product success when they move into brick-and-mortar channels?

Yes. Well, like I say, we're highly engaged with our community. In fact, my Chief Marketing Officer, sometimes traumatize me by dragging me on TikTok Live. So put me on TikTok Live and to all right, you got the big boss here. What do you want? Our community is not shy. I think last year, I got on one of those TikTok lives and the community goes, there's this great prestige bronze and drops. We like it, but we can't afford $40 for it, help us out. And I'm looking at the chat. I'm like, "All right, you want bronzing drops, then there'll be like another 100 chats.

No, no, we want no, no boss now. We want them now, get them. I'll leave that call a bit traumatized. I'll call my head of innovation, and I'll say, and our product pipelines go out at least 3 years. I'll basically say, all right, please tell me we have on our pipeline somewhere bronze and drops. [indiscernible], we've been studying the trend. We know that, that is highly appealing to consumers. And I'm like, great, when are they coming up? Just like, well, we have slated 18 months from now. I'm like, oh, no, no, I can't go on another TikTok live and have our community berate me on these bronzing drops. And so we sort -- and we have that ability to pull something up where in 6 months, we launched those bronze and drops, we are a great kind of hit last year, and that ability, again, to be well in touch with your community, we're very strong on social community is very much in touch with us. And both our teams own ideas from an innovation standpoint, but also our ability to jump on something that is trending or -- and many of these items that we look at have actually existed for a long time in. So we're also not dependent on whatever last year's cycle of innovation was for the last couple of years, a number of the things we do have been around for a while. They have a certain point where they really take off, we build them into our franchise approach.

Great. There's -- the brand has historically skewed young, TikTok live sort of part of the example of that, which is a great thing anyways and something a lot of legacy brands struggle with. But there's been some question whether it can feel to consumers as they age or feel directly to older consumers. How do you respond to that?

Yes, I'd say, look, we have multigenerational appeal. This ability of having prestige quality at great prices, really appeals every age group. Now we're particularly strong in Gen Z. We're the #1 brand amongst teens. I think we're 3.5x mind share to the #2 brand on that list. So quite strong on Gen Z, but we're also the most purchased brands among Gen alpha and millennials. So you find consumers following us up. And then we have this effect of like the reverse effect. It used to be traditionally in cosmetics and skin care, the mothers would teach their daughters. Maybe the mothers would go to the makeup counter, do a makeover kind of learn how do you make up.

Our consumers are incredibly digitally savvy. It's almost the other way around. The moms are tired of keep dragging them to target or keep driving them to Target or Walmart or Ulta Beauty, and we find that our consumer set basically tell their mothers like, "Mom, why are you paying $50 for a foundation, the e.l.f. one is actually better". And so we're finding every single demographic. We're picking up more consumers in particular strength in Gen Z, Gen alpha and millennials, who we're also picking up that older generation over time. And certainly, we can see longitudinally, our e-commerce business has existed for 21 years, we can track and we see that consumers stay with us, particularly given the quality of the products.

Yes. And the marketing model is differential, I think the fact that our TikTok live is part of the differentiation. It's not just leveraging influencers or celebrity endorsements, but really creating content and not being afraid to take on pretty bold collaborations Liquid Death, unkind bonnets, et cetera. So I guess, how do you foster such creativity? And then how do you control it to make sure that it's really contributing to brand equity in the right way?

Yes. So if you look at our marketing ROIs, there are multiples above industry benchmarks and they have been for a long time, even as we've taken up our marketing spend over time. The approach is very digitally native, primary engagement model is digital for us. And we live where our community lives. We were the first beauty brand on TikTok a number of years ago. I remember my CMO said, "Hey, we need to get on TikTok. That's where Gen Z is is that where Gen Z is and we absolutely know what's TikTok. This is a number of years ago. But we not only are strong on TikTok. We have our own channel on Twitch under the insight that 70% of our consumers either play video games or watch others play video games. We have a female empowerment platform on that.

We have the #1 branded experience on Roblox. It has, I think, of 98% rating over 16 million place. So we're quite strong across multiple digital platforms. And the entire approach is how do we engage and entertain our community. Now we sometimes say we're an entertainment company that happens to sell beauty products, but that level of engagement is what drives those very strong ROIs. And we have great ways of measuring it across core vehicles as we look, and we're constantly testing back to our digital routes. We're constantly testing, we're constantly learning and pivoting and there's real strong affinity.

And all the metrics support that. Our unaided awareness has basically gone up 20 points just in the last few years. I've been in the consumer space for a long time. I've never seen a 20-point increase in unaided awareness. It's about 33% right now. The market leader has 55%. So we still have plenty of room to grow. Our brand equity scores have gone up, you take look at our purchase patterns. Every metric has gone up through that combination between the innovation and the way to engage our community is a unique advantage.

Okay. Switching gears a little bit. The SKU assortment is, in many ways, pretty simple. Lots of power SKUs that have great scale and great velocity, but clearly, as the brand expands, you explore more white space SKUs, SKU count inevitably increases, how do you go against SKU complexity and how do you guard against diminishing returns on new innovations?

Yes. Fundamentally, the business is founded on a productivity model. And by that, I mean, we have a big online business that online business provides us insights that we use to decide what we're going to take to retailers. When we first started Target. We are unique. Most of our competitors will wait until an item goods to the bottom, 50% of the category rankings, the bottom third, and the retailer will discontinue an item.

Our approach is different. We're quite proactive. Every year, we change out as much as 20% of our assortment in retail shelves, taking those insights we have from our digital business, all to our Beauty Squad Loyalty program. We have 6 million Beauty Squad Loyalty numbers that are a rich source of insight also first-party data to help us optimize our marketing. And because of that optimization, we're able to have the strongest productivity of any cosmetics brand in the U.S. and that's measured by dollar per linear foot of sales. We outsell every other brand by a wide margin.

The other important thing is, over the years, we've been able to take that dollar productivity up at every single customer that we're in. So not only were the most productive brand that Ulta Beauty, Target, Walmart, really all of our customers will carry but are that ability to take that productivity up every single year has actually been the biggest driver of our business. We're picking up space every single year at every -- most of our customers, you've got a good track record of picking up the space, but the biggest driver is our productivity, and what that's allowed us to do in CEO 11.5 years, our SKU count is relatively constant over that 1.5 years. We're constantly weeding and feeding, we'll have a broader assortment online, but we have these power kind of SKUs and lineups and that ability to drive productivity is off to over circle. It also allows very strong volumes.

We're unique in our space and we primarily drive our business through unit growth versus average unit retail growth. And those very strong unit growth in turn also aids our supply chain and the costs that we're able to achieve.

Great. Now how do you frame the opportunity? You mentioned earlier, color cosmetics roots, but you've moved into skin care. So how do you frame that opportunity? And I guess what's the interplay between the e.l.f. skin care brand itself and the acquired brand?

Yes. Skincare is a huge strategic priority for us. We started a few years ago. We had strength, as I mentioned, in the cosmetics category, particularly in the face products, the complexion products. So they gave us permission to say, "Hey, should we do something in skin care. We built up that team, our Head of Innovation, drove Lamar, a number of the Lauder brands, our Head of R&D is a 20-year skin care scientists from Johnson & Johnson. So we built up that capability and we introduced e.l.f. SKIN. e.l.f. SKIN very much is the same model as elf cosmetics.

We look and we take inspiration from the best products of prestige, introduce an incredible value, and we've seen great success. e.l.f. SKIN is now in a few years, a top 10 brand in the U.S. in skin care. And the remarkable thing about that is the other brands on that list average about 63 years in age. So we've been able to do in a very short amount of time, what's taken decades for other players to do and their amazing products, an incredible quality for the price that you get -- we have the 2 of the fastest-growing products brands at skincare. e.l.f. SKIN is one of the fastest growing. The other one is Naturium. Naturium is a brand that we bought in 2023. What really appealed to Naturium is they went from 0 to $100 million of net sales in less than 2 years, which is remarkable because there are many brands in cosmetics and skin care is a very fragmated category, but very few have been able to scale.

In fact, in the U.S., there's only 26 that have more than a $100 million in retail sales, not even net sales. So when we sign Naturium, we went in and Naturium it's founded by Susan Yara, which is an influencer, but had this vision of how do you create the science of consistent skin care for everyone, everywhere, every day and these clinically effective biocompatible formula. So it differentiates from e.l.f. in terms -- it's a higher price point, around $18 on average, primarily appealing to millennial consumers versus e.l.f. around $9 appealing to Gen Z.

But the other important thing is almost 40% of Naturium's user base has meant, it has a very kind of neutral aesthetic, they're very strong in body care products. And so we have 2 very different brands that both are amongst the fastest growing in skin care. And what we see over time, global skin care is bigger than global color cosmetics, and we have successful kind of in a short amount of time, kind of proving our ability to be able to use both the same model and health and have a very different model in Naturium and continue to grow that.

Okay. We have not yet talked about international, specifically anyway. And you definitely are prioritizing to a degree, overseas expansion. So I guess, how -- can you maybe articulate the ambition and what you've seen over the last -- over the last several quarters?

Yes. So international is amongst the strongest growing parts of our business. And for us, we're a U.S. company, been in the U.S. for 21 years. And really, we're just focused on the U.S. We massive opportunity we still do in the U.S. As I mentioned, we're #2 in dollar share, a clear line of sight to number one, core outright leadership. And a further perspective on that, I talked about our productivity model before.

The first customer we went into in the U.S. was Target. They're the first customer carry Target. If you look at Target today, not only we are the #1 brand, but we have over 20% of their category. We see every other customer following that same trajectory. So if I look at Walmart, I look at Ulta, you got to look at all of our main customers. you're seeing that same kind of linear kind of line like Target had. So we have very strong hopes and track record in the U.S. But only 20% of our business is outside the U.S. And that compares to many of our peers that have over 70% of their business outside the U.S.

So international is a massive opportunity. The best thing about international is our brands really resonate outside the U.S. The first place we started was Canada and the U.K. We're now in a top 2, 3 position in both those countries with a very limited distribution footprint. We started in the U.K. with Shoppers Drug Mart, Boots came calling on us. We're in boots. We have a very strong business there. And the vast majority of our international business. frankly, over the last few years has been really driven by Canada and the U.K.

But we've been sequentially rolling the brand out. And our strategy is very much what we described in the U.S. We partner with a leading retailer in a market, they introduced and help establish the brand and very quickly every other retailer wants e.l.f. in that market. We usually often seed also digitally first. And so in the last year alone, we've launched the brand with Douglas in Italy, Rossman in Germany, [indiscernible] in the Netherlands. We just announced on our call, Kruidvat, we're rolling out the rest of the Netherlands and Belgium.

And the interesting thing is every single customer we enter, we often enter in a top 3 position. Even last year, we entered Sephora Mexico. It was the best launch e.l.f. ever seen. And if you think about Mexico, every other brand in that in that box is a prestige brand but e.l.f. looks like it Douglas. And Douglas Italy, our gondola is right next to [indiscernible]. So it's a very elastic brand in terms of that prestige quality at these incredible prices really resonate. And I'd say part of the success that we're having internationally is so much of our strength in social in the U.S. is consumed outside the U.S. long before we get into a market, this pent-up consumer demand. Remember, Douglas Italy, we asked them. We said, "Look, we don't have any employees in Italy. We're an American brand, how should we customize this for the Italian consumer. And they said, you don't need to customize Italians like hot American brands. Showing up the day we launch the Douglas, their lines down the block.

We quickly became and we've maintained the #1 position within Douglas Italy that talks about that strength. And the only argument we had with Douglas is that the only -- you guys are very strong in primers. Our power group primers, the #1 item in the U.S. in all of color cosmetics, across mass and prestige. We have a 63% share of the primary category. They said, "Well, that category doesn't really exist here. We said, look, we're a test and learn brand. Why don't we start with it? It's the #1 product for us. And if it doesn't work, we have other assortment, we'll change it up.

Sure enough, not only we're the #1 brand with Douglas in Italy, Power Group primer is the #1 item in Italy as well. So this -- the world is more like than different, and our value proposition, innovation, market engine absolutely resonate outside the U.S.

Great. among the news last week was the announcement to acquire Rhode. And I guess the question now on why Rhode?

Yes. What we saw in Rhode, this is a brand created by Hailey Bieber and founders 3 years ago. It was just one of the most phenomenal businesses I've seen. I talked about how difficult it is almost out of 1,900 cosmetics and skin care brands or difficulties to scale. Well, Hailey and her team were able to take their business from 0 to $212 million of net sales in 3 years DTC only with only 10 products. Never seen anything like that in my career in terms of the strength that you have.

And so we're always -- we're a disruptor. We're always attracted by like-minded disruptors to have a direct-to-consumer business that got over $200 million in net sales with 10 products, not only caught our attention, it caught the attention fourth world's largest global retailer. Facts are so excited instead of their normal model of testing a brand and a subset of their doors and then expanding from there. They're going to launch Rhode in all of their U.S. and Canadian doors this fall, followed by the U.K. by the end of the year.

So we see massive white space for Rhode. And part of this why they're attracted to e.l.f. because they could have gotten probably a lot more money if they didn't partner with us is they were attracted by the disruption they see all continue to do. And we're a founder's dream instead of over integrating a brand. If you look at our brand portfolio, a few of our other brands. I mentioned Naturium and Susan Yara's vision and being able to see that through -- we appreciate Hailey has a unique vision in beauty, a very simple regimen, one of everything really good. I talked about the power SKU lineup, but her same approach in terms of community engagement.

One of our Rhode's activation. I've never seen consumers willing to camp out overnight, wait 14 hours in line not only to buy to the product, but actually buy into the entire lifestyle. So this entire lifestyle beauty approach with incredible, Hailey is one of the best founders have met incredible instincts, beautiful aesthetic, certain pulse on where consumers are and gives us another fast-growing brand in our portfolio at a to helping achieve our global ambition.

Great. I mean the pushback that I've heard from investors on it is simply that celebrity beauty brands have not always had longevity. So I guess, how do you -- how tied is Brand to Hailey in your mind? And I guess, how committed to she is staying on?

Yes. No, we've traditionally stayed away from celebrity brands for that very reason of the volatility that you often see with them. I would tell you, Hailey is way more than a celebrity. She is one of the most thoughtful founders of fervent. The brand has some of the best brand metrics I've ever seen. It's got the highest repeat rates almost any brand I've ever seen, that fervent community I talk about, it's where we can add value. We know how to build brands. We know how to really drive awareness. As successful as the Rhode has been, it's got 20% aided awareness, which is actually really good considering it's only 3 years old, but most of the prestige brands in its space have well over 40%. We know how to drive brand awareness, primary previous example. We have an incredible innovation engine that can also help within that.

And then obviously, our ability to -- in retail and be able to expand distribution. So this -- we've passed on most delivery brands. This is not a celebrity brand. Yes, it is very tied to Hailey, She's an incredible founder. She's in it, very hands on, which is the other thing I've seen. Most celebrity brands haven't worked because it's just a celebrity lending their name to something. It's not a founder and the founder kind of core energy that goes into it and part of why she sold to us as she wants to stay for the long term and basically have the brand reflect every stage of her life, and she's also built an incredible team. Their CEO, Nick Vlahos. He and I worked together a year Clorox have known him for 20 years. He's experienced kind of General Manager, CEO, co-founders, the rest of that team, and we'll be able to enhance that team further. So we would not have bought this and we don't need to buy anything, frankly. We've got strong organic growth within our existing portfolio. But when we see some special like a Naturium like a Rhode that we know we have a long runway with, we'll jump at that as well.

I mean, if you took the next couple of years, what do you think the biggest 1, 2 or 3 growth opportunities is for Rhode? And also as a premium brand coming in with fantastic economics, what impact does it have on your P&L?

Yes. So Rhode has unbelievable white space. It's direct-to-consumer in the U.S. only. I mean about 20% is outside the U.S. but a very limited distribution footprint. We know how to expand distribution. Our first priority is going to be fully maximized the potential we see with Sephora. They -- I was talking with them the other day, they couldn't be more excited. They think this is going to be their biggest launch over the last few years. They're that excited about it. So we have a long runway. Sephora has had a great track record of further nurturing and growing brands over time, certainly opportunity there, not only with Sephora with other retailers.

So our biggest priorities are continue to enhance the team for the growth that we see, really make sure we broaden that distribution footprint. There joint ideas we have on innovation and category that we see opportunity for us. So we have a number of years kind of mapped out on Rhode as we go through. And then the second part of question...

Just the impact on the P&L given...

Yes. And Rhode is accretive. So we haven't issued guidance, so we haven't talked about what we have said is even after investments we plan to make in increasing marketing and the retail rollout at Sephora, including field sales support, et cetera, it will still be accretive to the e.l.f. Beauty company overall. So it's it's great on both sides. And that's also the other beauty of it.

Yes. As you said, you don't need acquisition and you just did one. But as you think about capital allocation priorities and portfolio because you've also -- with the 2 acquisitions you made, you've moved the price point higher. I don't know if that's intentional or just have stance. But how do you think about portfolio construction? And what is the M&A over time?

Yes. So for portfolio construction, we have a portfolio of complementary distinct brands that are quite different from each other. The one unifying theme for all of them is their disruptors and they all have strong growth potential. In fact, the 5 brands we had before we acquired Rhode all grew at fiscal '25. So that ability of really taking the core capabilities we have seeing a founder's vision of being able to continue to grow them. I talked about e.l.f. SKIN, Naturium, e.l.f. Color. I didn't talk Well People, which is a plant-powered clean beauty brand, Well People was really -- it started as a capability investment for us. It gave us the confidence to reformulate e.l.f. into clean formulations.

The FDA and the U.S. only bans 11 ingredients from cosmetics formulations. We don't formulate with over 2,500. And we wouldn't have been able to get there without Well People, but it's also growing over 100 EWG Verified products, pregnancy friendly claim. It's absolutely perfect for that audience of moms and new moms, and we're seeing strong growth there.

Keys Soulcare is a brand we created with [indiscernible] and it's based on holistic wellness. And we really support our vision of wellness. So I would say portfolio consent for us is, does it disrupt the industry, does it complement our existing portfolio of brands, and there is an accessibility point to it. But we don't have any real aspirations in luxury, even Rhode, if you take a look at Rhode's price points, they're entry-level stage. So it's feeding our mission of making the best of beauty accessible where we have the distinct price points. So you've got e.l.f. color is around $6.50, e.l.f. SKIN is around $9. You've got Naturium around $18. You've got Keys Soulcare kind of in that early $20 price point, you've got Rhode in the kind of mid- to high $20 price point, and so you've got differentiation kind of in price tiers, but they all share that ability of making the best of prestige accessible and different tiers, different audiences.

And so say, look, we haven't had any grand ambitions. So we're not trying to be the next L'Oreal or [indiscernible] that's not our strategy is primarily on capital allocation, support our strategic imperatives are the reintegration or ability to invest in those brands, expand them around the world. And then -- and then we have a strong balance sheet. So when we do see these disruptor brands, we have a very high bar for.

We look at a lot of things, you generally say note everything because we don't have the confidence it has that organic -- the same growth profile that e.l.f. and our other brands or doesn't have the right profitability. And we're also very disciplined about valuation, the valuation on Rhode and Naturium, they are incredibly attractive from any kind of precedent transactions.

And so I would say it's all about for us being a different kind of beauty company or driven kind of company period. That's our vision by building brands that disrupt norms, and connect communities through positivity, inclusivity and accessibility. And every one of our brands fits that vision. And when we see some of that fits that vision that has very strong growth, we're open to it. But we have plenty on our with the existing portfolio.

Well, we look forward to hear more about next year when you're back. With that we're right at time. So I'll leave it there. And thanks, Tarang. Appreciate it.

Thanks for having me. Appreciate it.