e.l.f. Beauty (NYSE:ELF) held its fourth-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Access the full call at https://event.choruscall.com/mediaframe/webcast.html?webcastid=ignmgrJL
Summary
e.l.f. Beauty reported a 25% increase in net sales and a 13% rise in adjusted EBITDA for fiscal 2026, marking the seventh consecutive year of industry-leading results.
The company highlighted its strong brand portfolio, with e.l.f. Cosmetics achieving $1.8 billion in global retail sales and significant market share gains.
Strategic initiatives include price reductions on specific products to enhance value, a focus on international expansion, and leadership changes to drive growth.
e.l.f. Beauty's acquisitions, such as Rhode and Naturium, have diversified its business and contributed significantly to growth, with Rhode achieving $500 million in global retail sales.
For fiscal 2027, the company expects 12-14% net sales growth and plans to continue investing in innovation and market expansion.
Full Transcript
Kaci Catton (Vice President of Corporate Development and Investor Relations)
It's. Thank you for joining us today to discuss Elf Beauty's fourth quarter and full year fiscal 26 results. I'm Kaci Catton, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com since many of our remarks today contain forward looking statements, please refer to our earnings release and reports filed with the SEC where you'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.
Tarang Amin (Chairman and Chief Executive Officer)
Thank you Casey and good afternoon everyone. I'm proud of the ELF Beauty team for delivering our seventh consecutive year of industry leading results. In fiscal 26, we grew net areles 25% and adjusted EBITDA 13%. Q4 marked our 29th consecutive quarter of net areles growth. We're one of only six public consuMeccar companies out of 546 that has grown for 29 straight quarters and averaged at least 20% areles growth per quarter. We have an incredibly strong portfolio of brands. Out of approximately 1800 cosMeccatics and skincare brands tracked by Nielsen, only 14 have surpassed $200 million in retail areles. We have four brands to surpass this threshold, each built on the areMecca winning combination. Our value proposition, Powerhouse Innovation and Disruptive Marketing Engine. Our fiscal 26 results by brand reflect the strength of our portfolio starting with e.l.f. CosMeccatics. e.l.f. CosMeccatics delivered approximately $1.8 billion in global retail areles this year and we continue to drive industry leading market share gains. In fiscal 26 we increased our US market share by 115 basis points, the largest share gain among the nearly 1000 cosMeccatics brands tracked by Nielsen. This marked our 29th consecutive quarter of market share gains, a 920 basis point increase over these past seven years. For perspective, the next highest brand grew 200 and 40 basis points during the areMecca period. As great as our share gains have been, we still see significant Runway for growth. Nationally, ELF has 13% share in mass color cosMeccatics. At Target, our longest standing national retail custoMeccar, we have 21% share. Our aim is to bring other retailers to this level of performance over tiMecca. Looking to ELF Skin e.l.f. skin delivered approximately $200 million in global retail areles this year. We're applying the areMecca innovation strategy with e.l.f. Skin that fueled ELF CosMeccatics, taking inspiration from our community and the best products and prestige and bringing the market in extraordinary value with our signature elf twist. The strategy is working. Over the last five years elf skin has risen from the number 25 mask skincare brand in the US to the 11 brand. We believe there's plenty of opportunity further share gains as ELF Skin today holds about a 2% share of the Masked Skin category as compared to the number one brand holding a 13% share. Turning to Naturium, the clinically effective biocompatible skincare brand we acquired almost three years ago, Naturium delivered nearly $250 million in global retail areles this year, double its pre acquisition levels in Q4. Naturium was the fastest growing among the top 50 skincare brands and we see plenty of white space ahead. Moving to Rhode, the high growth beauty brand founded by Hailey Bieber, which we acquired last August, continues to exceed our expectations on an annualized basis. In fiscal 26, Rhode delivered over $500 million in global retail areles and approximately $390 million in net areles, growing net areles over 80% year over year. In fiscal 26, Rhode achieved the number one beauty brand ranking in Sephora North AMeccarica and executed record breaking launches with Sephora in the UK and Mecca in Australia and New Zealand. With Rhode in less than 20% of Sephora's global stores, we see treMeccandous opportunity in the coming years. Our acquisitions of Rhode and Naturium have Meccaaningfully diversified our business across brands, categories and supply chain. Over the past three years we've seen non elf brand areles 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 Naturium with slower than expected growth on the ELF brand. ELF Brand's 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 core items that spring innovation has historically delivered. We're not aretisfied with these results and are taking action to further strengthen ELF brand growth across four key value Innovation International and Leadership. First value since our founding over 20 years ago, we've democratized access to the best of beauty by delivering exceptional value to our consuMeccars. In August 2025, we took a dollar price increase across all ELF brand skus in response to several factors including tariffs and inflation. As we look at the state of the consuMeccar today, we have recently seen a more pronounced decline 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 Glow Skin Tint from $18 to $14. Initial test results show a 38% lift on Amazon and a 36% lift across all retailers, including a triple digit areles 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 requests 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 areles grew 38% behind the strength of our expanding brand portfolio. In fiscal 26, we launched in eight international retail custoMeccars across 14 countries. For the year ahead, we're focused on growing share for the ELF brand in our largest markets, the uk, Canada and Germany. By activating our marketing efforts, we've already started to see green shoots in the UK and Germany as we exited Q4. In addition, we will continue to selectively seed the ELF brand in new markets. Fourth Leadership we recently announced key leadership changes to sharpen focus on the ELF brands and accelerate our next phase of growth. Corey Marchisotto has been appointed to President of ELF Brands, a newly created role that will leverage Corey's ability to lead teams, scale brands and drive cultural relevance. Corey will focus on expanding the ELF brand across categories and geographies. We're excited to welcoMecca Oshia Savour as Chief Marketing Officer, ELF Brands. Oshia 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 instruMeccantal 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 Soul Care 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 five 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 engine to fuel brand awareness across our portfolio and deepen the connection we have with our community. Our marketing initiatives have successfully expanded ELF's unneeded awareness from 13% in 2020 to 45% in 2025 and have supported the strength of our market share gains year after year. ELF 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 Natorium. We have a unique ability to engage our community, combining experiential moMeccants and product innovation to drive cultural impact. ELF CosMeccatics and Rhode took over the 2026 Coachella Festival. Coachella is one of the most influential cultural events for Gen Z and Millennials, serving as a launchpad for trends across beauty, fashion and social Meccadia and creating a content pipeline far beyond the real tiMecca event. ELF was the first beauty brand to activate across all three weekends of Coachella and Stagecoach, a companion country music festival, creating an imMeccarsive brand experience. Rhode drove moMeccantum at Coachella, connecting headline talent Justin Bieber with the limited edition Road with the Biebers collaboration Drop amplifying impact with its unique Rhode World activation, ELF Beauty was a clear leader on social converaretion at Coachella. Look into Categories the skincare category remains a core area of focus behind Rhode Naturium and ELF Skin, three of the fastest growing skincare brands. Rhode's recent product launches in skincare, the Caffeine Reset mask and Peptide Lip Boost underscore the team's ability to consistently translate focused product innovation into outsized consuMeccar demand. Both launches followed Rhodes proven playbook, tightly edited product drops, strong ingredient LED positioning and a highly coordinated digital rollout. The combination translated into Rhode's biggest skincare launch day ever on its DTC 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 ELF is elastic beyond the cosMeccatics and skincare categories. Following our first fragrance partnership with H and M in January, we took E L F's Power Grip to the hair care category for the first tiMecca in March, launching a limited edition Power Grip styling collection. The collection sold out in 48 hours, generating 95% positive consuMeccar sentiMeccant and the bundle attracting 65% new to ELF consuMeccars. 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 US there's significant pent up global appetite for our brands. 50% of Elf brand's social followers are outside the US and 74% of Rhodes followers are outside the US as we look to new markets, Rhodes launch in Australia and New Zealand with Mecca was another record breaking milestone. It was Mecca's biggest launch in history. This September, we're excited to further expand Rhodes global presence. Launching with 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 ELF 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.
Mandy Fields (Senior Vice President and Chief Financial Officer)
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 road, our Q4 net sales were up approximately 1% year over year within the range we provided in February. Looking to our geographic regions, US 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 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 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, a result that 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 tariff rate of approximately 55%, more than double the 25% rate we faced 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 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 ELF Beauty'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 2 times 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 in 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%, adjusted EBITDA between 379 to $385 million, adjusted net income between 198 to $201 million and adjusted EPS of $3.27 to $3.32 per diluted share. We expect our fiscal 27 adjusted tax 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 rode adding approximately $140 million in net sales in the first four 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 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 IEEPA 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 and 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 and 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 and 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 seven 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 road ahead. With that operator, you may open the call to questions.
OPERATOR
Thank you. We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question Please press star then 2. The first question comes from Sydney Wagner. The Jeffries. Please go ahead. Hi. Thanks for taking our question. 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 prestige side in terms of newness that excites you the most and then maybe just comment a little bit more on the adjacent category opportunity. Thank you.
Sydney Wagner (Equity Analyst)
Hi Sydney, this is Tarang. So I'd say first of all in innovation, innovation is still strong relative to the category. In fact, in spring we already have two of the top 10 innovation launches 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. Continue to 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 two 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 fall 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, and quickly bring them to market. So we're going to be bringing additional innovation that we had previously not planned for FY27 into this fiscal year. So overall, I'd say we feeling 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. But if you take a look at some of our biggest launches ever, they took inspiration from prestige items that have been around for at least a decade. If I go back to our lip oils, our lip oils were fashioned after a prestige item that had been in the market for about a decade that gotten viral in the last couple years. If you look at our concealer franchise, our camo concealer franchise that ended up taking inspiration from items that's been around or a franchise that's been around for over 15 years. So we have a broad 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 and M&JP January in the fragrance category. That was very well received. What we just did with Power Grip in March, taking into hair care also had good signals. What I 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 skincare. We now have three of the fashion growing skin care brands and that would be our first focus while we selectively look at additional categories going forward.
Tarang Amin (Chairman and Chief Executive Officer)
The next question coMeccas from Olivia Tong with Raymond JaMeccas. Please go ahead. Great, thanks. I was wondering if you could provide soMecca perspective on the fiscal 27 outlook, particularly on road. It looks like you embedded Rhode properly below where it was this year despite having only rolled out to about 20% of Sephora doors. So could you give a little bit more color behind that? What you're seeing so far with the brand particularly, you know, I Meccaan Q1 is more than half, more than half in the books at this point. What you're seeing in terms of new markets and then similarly on the core ELF brand, if we talk a little bit about the, you know, when you know what you're hearing with respect to the pull forward of innovation and the retailer response to that and then just following up on the tariffs, I think you said that you're not assuming any tariff refund, but you know, the rates have obviously changed. So to the extent that that change has gone through, what are you, what are you factoring in the gross margin line? Thank you, Olivia. Thanks for the question. I'm going to go ahead and take the first one on the FY27 outlook and what we've assuMeccad for road. So as we talked on the call, we're very excited about what we're seeing on road. You know, we talked about seeing 500 million in global retail sales on the brand and are very excited for what to expect in fiscal 20. So what we baked in is about nine points from now through August really until it turns into organic sales and then it becoMeccas a part of our organic sales growth as we move forward. You know, you heard that we are launching in the EU with road across 19 countries. Very excited about that, but also want to take that a quarter at a tiMecca as we go through and so excited for what we have built in on road, but believe there could be more to coMecca on that brand just given the moMeccantum behind it.
Olivia Tong (Equity Analyst)
And then on your 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 when we 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 in your last question, while tariff refunds are not part of our outlook, we absolutely expect refunds from tariffs. I think it was about $58.5 million that we're expecting. And our plan on those one time tariff refunds is really to go back and invest in value and accelerating unit growth. Those are the two areas we're particularly focused on and we feel really good between the innovation we have coming as well as plans we have on both value and what we can do against units to be able to continue to accelerate the business.
Mandy Fields (Senior Vice President and Chief Financial Officer)
And maybe just to add, Olivia, if you asked on the gross margin impact of tariffs this year, so last year on average we were paying about a 55% tariff. What 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. The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.
Dara Mohsenian (Equity Analyst)
Hey guys. So it sounds like it's still early days here on the potential price adjustments in the portfolio. But. 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 ranges of price adjustments might be in those areas. And then second, if we could just focus on the base ELF brand value shares come under some pressure in the US do you think that's just the innovation that you mentioned or are there other factors there such as a 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 ELF brand? Thanks. Hi Dara. We talked on the call. We've already started looking at various price adjustments. The experiment we did with our Halo Glow skin tints taking it from $18 to $14 we saw almost 40% unit lift. We're looking at other families, we haven't disclosed which families we're looking at. 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 and every day great value. We take quite seriously our ability to deliver superior consumer value to consumers. And so you'll see us 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're seeing really a couple different factors. One spring innovation was below our expectations. So we didn't see the same level of halo that we typically see on our core business. In addition, if you recall last year we moved up one of our big launches, our melting lip bombs into this period. So you're basically lapping a period that had very strong innovation without the commensurate innovation that fall. Innovation for us will go out in about another month. So it'll be another month or so before you start seeing us actually comp 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 consistency of what's driven our business over time. So number one is value already talked about the actions we're doing on the value equation. Number two 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 both value and innovation. And so you continue to expect those three drivers to continue to propel our business not only on Elf but across the portfolio. I think one of the things that's been missing recently has been the strength of the portfolio. Overall, every one of our brands grew in fiscal 26. Notorium and road in particular have very strong growth and we continue to fuel them. A big part of Natorium's growth is we put for the first time awareness building advertising on Natorium. We saw a major acceleration in that business. As I mentioned in the prepared remarks, Natorium is the fastest growing brand Amongst the top 50 skincare brands. And Rhode is just phenomenal with so much more potential, particularly with our expansion coming up with Sephora in Europe.
Andrea Teixeira (Equity Analyst)
The next question comes from Andrea Teixeira with JP Morgan. Please go ahead. Thank you. I appreciate the color on the 140 million in sales that you expect for Rhodes contribution in the four months. So and then 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 is road itself for the first four months. So embedded in that guidance how you're thinking about organic as we go through the year. Organic meaning organic elf. Right, organic. Obviously you gave guidance of organic 4 to 5 positive. So if you take out the first quarter, how we should be thinking of the sales, you know, the pricing repositioning and how we should be thinking the cadence of after the first quarter, the second quarter, the ERP impacts through the year. Thank you. Hi Andrea, take that question. So on an organic basis, we talked about 4 to 5% for the year. Q1 we call it down high single digits because of the SAP kind of pull forward that we have 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 road being added to our organic growth in Q2 as well. So that as we think about the first half, 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 Terrain mentioned on the value, the additional innovations, those activities actually are not yet baked into our outlook. We want to see how things progress before we add those in to our numbers. The next question comes from Anna Lazul with Bank of America. Please go ahead. Hi, good afternoon. Thank you so much for the question. I wanted to go back to the pricing discussion and 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 lift in sales which outperforms 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. Thank you. Hi Anna.
Anna Lazul (Equity Analyst)
So I'd say on the overall pricing discussion we haven't seen big changes on 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 if you take a look at the strength that we've had at Amazon that's been ongoing for quite some time. We're also one 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 tint, we actually started on TikTok Shop and got incredible consumer response. And part of the reason why we're using that strategy is we're seeing a lift across all of our retailers when we do that and bring that the strength that we have in social and be able to apply it to connected commerce as we're going through then from the balance of innovation we have very strong innovation. Natorium has had a good cycle of innovation. It's being very well received. I talked about every. Seems like every launch we do on road is the biggest launch we've ever done as we're going through. So we're seeing good results on innovation across Natorium Road even well people as we go forward. So we feel good about innovation for the rest of the year.
Steve Powers (Equity Analyst)
The next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Tarang Amin (Chairman and Chief Executive Officer)
Okay, thank you so much. So Tarang, I guess the first question, even though I'm a little confused because I know that this is based on what Mandy just said, it's not in guidance. But given what you're contemplating in terms of pricing and innovation, how would you be thinking about when you would start to see those interventions take shape in consumption? 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 health versus what you're hoping to achieve, assuming success on pricing and innovation, that's number one. Number two, man, just a quick cleanup on the IPA tariffs. If those refunds do come through, would that be a P and L item or is that just a cash balance sheet item? Thanks for both. So I'll take the first one. I would say, you know, the way we're thinking about the focused interventions on pricing and innovation is 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 ELF consumption around the rates that we've seen really in 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, we're just start the pricing actions in the next few weeks here. So I would say, you know, it takes a few weeks to see them really take hold. So I'd say in the next couple months, you'd start to see kind of the impact, particularly on units with some of the pricing moves that we're going to make. And then innovation, as I mentioned, about a month from now, our fall innovation comes out and then the incremental innovation that we slated, we slated to get in before the holidays. So kind of think of it in our Q2, Q3, you should 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 a baseline outlook and adjust that as each quarter comes in, as we see the results.
Mandy Fields (Senior Vice President and Chief Financial Officer)
And then on the IPA tariffs, it would be a P and L impact. So the way that we're approaching that is as these refunds come through, we would flow through a portion, through cost of goods for any inventory that has been sold through that carried those IPA 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 Grohm with ubs. Please go ahead.
Peter Grohm (Equity Analyst)
Great, thank you. Good afternoon everyone. So, two questions. One, just maybe more housekeeping. The organic sales in the quarter of 1%. Is there a way to break out what you saw in the US versus internationally? I think it's the 8020 rule for road for US versus international held true. This quarter would seem international did much better. So 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 RoEV moves into organic sales growth and I would imagine the growth rate there is much stronger versus the base business.
Mandy Fields (Senior Vice President and Chief Financial Officer)
Thanks. Yep. 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 and so we want to make sure we're taking a balance approach. We feel great about the opportunity that Rhode presents as we go through with the big EU launch slated for this fall. Again, want to see how that goes before we start to bake any additional upside in there. But like I said earlier, the momentum that we're seeing behind rode 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 US and international both showing strong growth overall as A company we really haven't broken out the organic piece between us 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 Anna and Piper Sandler. Please go ahead. Great. Thank you so much for taking our question to Tarang. Just I guess a 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 lack of that compelling innovation which you mentioned for spring a couple of times. And can you talk about the margin impact from that? I think Mandy, you said that it's not contemplated in the guide. So are you thinking that would be offset by the tariff refund? And then we had a follow up as well.
Tarang Amin (Chairman and Chief Executive Officer)
Thank you so. Hi Anna. I would say the reason why we have confidence on the lower 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 tiMecca we made the pricing move. Plus inflationary pressures that caused us to take a dollar price increase overall. As everyone's seen, our dollars increased with that but our units fell off. So we saw a pretty big fall off on units from where before we took pricing to after we took pricing. And then as we started doing soMecca of these tests we've seen really strong unit recovery on for example the skin tints at $18 to $14, a 40% lift almost right away and across all custoMeccars that we tested that in gives us confidence again. We're test and learn brands so we will test our way into which are the right families to be able to make that action on. But we're known for our phenoMeccanal value and value is always a place we go to first and then second pricing relative to maturity. We still see treMeccandous white space for the Elf brand even in the US our whole market. And we talked our national shares 13% at Target, our share is 21% and the only difference between Target and everyone else is at a five or six year head start as we look across our custoMeccar base. We recently were I think the only beauty company that was nominated for Walmart's Excellence in Experience award for the work that we had done on our highest vision sets and their overall new beauty concept which are very excited about in that beauty concept. ELF anchors the entire departMeccant with increased space, more points of distribution. We 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'd expect to roll out more on the highest vision sets. We see a massive opportunity with Walmart. SaMecca with Ulta. We recently expanded space in Ulta. It takes us a couple cycles to optimize that space, but we see additional opportunity there. But really across every one of our custoMeccars. Our objective is how do we take that 13% share we have nationally actually a little bit less than 13% on balance of custoMeccars 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 treMeccandous amount of white space. You then add on the opportunity we have in skincare and international, we just see a lot of white space adds.
Mandy Fields (Senior Vice President and Chief Financial Officer)
And in terms of the margin impact, Anna? Yes, we would plan to use any IEFA refunds to help offset some of those investments that we want to make behind value as we go throughout the year.
Tarang Amin (Chairman and Chief Executive Officer)
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 one 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 things that work with the consumer.
Susan Anderson
The next question comes from Susan Anderson with Kenaccord Genuity. Please go ahead.
Alec Legon
Hi, good afternoon. Alec Legon for Susan. Just a broader question. How should we think about the competitive landscape for the ELF beauty brand? Obviously units started trending down after the price increase. I mean where do you think that ELF consumer is moving to? Are they, you know, are they trading up, trading across, maybe buying less often? All of the above I guess. How, 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 FY26 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 the 920 basis points of share we've picked up over the last seven years. So we're still confident of our ability to continue to 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 really across the category. We usually don't call out the competitors we're sourcing from, but it's pretty broad array of where we see that we also continue to pick up additional households from a consumer standpoint. Not only we the number one brand amongst Gen Z, Gen Alpha and 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.
Bonnie Herzog (Equity Analyst)
The next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead. All right, thank you. I just had a quick follow up question on the slower innovation this spring. Could you talk to space and whether you 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 FY27 or do you expect shipments to track more in line with consumption trends? Thanks.
Tarang Amin (Chairman and Chief Executive Officer)
So I'd say Bonnie, overall we continue to pick up space. The number one 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 pretty significant space at Ulta Beauty. We started rolling out those Walmart highest vision sets. We have additional space. We'll talk about soMecca of the other space we have coming in subsequent calls and then the focus we have and it's not just on ELF but across the portfolio. Naturium also picked up additional space at Boots. We continue to expand the Walmart entering Walmart with Naturium in a subset of their doors. We're really pleased and Walmart is as well in terms of what they're seeing. So it gives us even greater opportunity there and certainly road with our big 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 space. When retailers take a look at their sales relative to the space allocation. ELF is still dramatically under spaced relative to any of our competitors. So we still see more room to
Mandy Fields (Senior Vice President and Chief Financial Officer)
there and then on the sell and sell through trends. Bonnie, we expect that to track much closer this year. As we've said, over time consumption and net sales will balance out. And certainly, you know, I know we talked about some of the dynamics between Q1 and Q2, but as we go throughout the year, you should see, you should see that much closer. The next question comes from Filippo Filorne with City. Please go ahead.
Filippo Filorne (Equity Analyst)
Hi, good afternoon everyone. I wanted to ask on some of the international Markets that you called out in the past, especially the UK and Germany, you had some weakness there in prior quarters. Have you seen some improvement or are you expecting some improvement in fiscal 27? And then Mandy, just a quick housekeeping between EBITDA and net income. Is there any particular driver that gets you to a much lower growth in net income versus ebitda, whether it's DNA, net interest or other income. Thank you. Hi Filippo. So first on international markets, we definitely have seen a pickup in both the UK and Germany recall last year. Really even more than the last year, we've been facing a particularly strong, heavy promotional environment in the uk. The state of the UK consumer. Our teams put focused action in place including awareness building, advertising and marketing support as well as really good retailer support across superdrug booths and other retailers. So UK we've definitely seen pick up in Germany. We were just lapping the massive launch we had with Rossman Germany. Our launch into DM has gone well and we're seeing better trends in Germany overall as well. 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 those markets while we continue to selectively seed additional markets.
Mandy Fields (Senior Vice President and Chief Financial Officer)
And then just on the housekeeping item, things to keep in mind, the amortization of intangibles related to the road acquisition and interest expense. Interest expense as we go through now carrying a full year of the higher debt also related to the road acquisition. The next question comes from Rupesh Parikh with Openhammer. Please go ahead.
Rupesh Parikh (Equity Analyst)
Good afternoon. Thanks for taking my question. So, two questions on road. So first, as you lapse on the launches in markets such as the us, just curious what type of growth rates you would expect in consumption. And then second, just as you look at ROAD in the intermediate term, just curious in the types of growth rates you'd expect for the brand. Thank you. So Rupesh, we've talked about ROAD growing at about an 80% year over year in this past fiscal year. We continue to expect very strong growth rates on road. We haven't disclosed the specific amount. What I tell you when I take a look at the US versus international market. The US as we said in our prepared remarks, Road is the number one brand that Sephora carries and we've continued to see very strong momentum in Sephora in North America. And if you go into many of the Sephora doors, we're doing that with one bay relative to competitors of as many as two or three different Bays. So it's a very similar story to ELF dramatically under space relative to the productivity. The biggest issue we've had on road is, is keeping up with the consumer demand. We have enough capacity. Making sure those stores stay replenished is probably the number one complaint we get. So we still have a ton of opportunity even within the US 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 all in on road 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 UK launch of Mecca and then having additional markets on road 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 seen at least before has ever seen.
Oliver Chen (Equity Analyst)
The next question comes from Oliver Chen with TD Cohen. Please go ahead.
Mandy Fields (Senior Vice President and Chief Financial Officer)
Hi. Thank you very much. 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 pullback yet you're undergoing some innovation changes. And then a second question is thinking about Naturium and your skin care excellence there. Are there synergies that you can leverage across the platform with that to continue to push forward with Corelf skin care? Thank you.
Tarang Amin (Chairman and Chief Executive Officer)
Hey Oliver. So on marketing spend we've outlooked a 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. Tarank talked about maybe leaning into some more consumer facing things with the tariff rebate that may be coming through here this year. And so 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 lean in if we saw the need there. And you know I would add to that the team is constantly optimizing. When I take a look at the mix within our marketing few years ago, getting into awareness building advertising was a big unlock for us. We continue to see unlock as we go across each of our vehicles and the team's constantly taking a look at that, we feel really good about it. Our marketing works best when it's paired with really great innovation too. So 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 Naturium as part of the portfolio. There's a ton we've learned from Natorium on the skincare side that's benefited ELF skin and vice versa. Same is true with Rhode as we've taken a look across each of these brands. Three of the fastest growing skincare brands, there are definitely opportunities to cross share learnings but you each brand has its own unique focus and opportunity ahead.
Javier Escalante (Equity Analyst)
The next question comes from Javier Escalante with Evercore isi. Please go ahead.
Mandy Fields (Senior Vice President and Chief Financial Officer)
Hi good afternoon everyone and thank you for taking my question. I would like to double click on Rhode again, perhaps from a different perspective and perhaps Mindy could help us with this. So basically road in fiscal 2026. So because there is a pro forma versus a reported road. So basically what is the number that we shall use for fiscal 26 I would imagine would be pro forma. So that 390 is a pro forma. It's a reporter. So if you can help us with that. And also trying to understand the evolution of ROAD business models. So There is a D2C a direct to consumer aspect to it and then there is the wholesale aspect to it that goes to Sephora, US etc. So if you can help us at least know what percentage of whatever number you're going to give me for fiscal 26 is wholesale versus D2C. Thank you. Yeah, 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 that rote delivered in fiscal 26.
Tarang Amin (Chairman and Chief Executive Officer)
And then we haven't broken out DTC versus wholesale. But I tell you the DTC we always modeled as part of our acquisition economic. What type of falloff would we see in D.C. given how much retail we're 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 show up first on our DTC site that get particularly 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 would expect the retail side of the business to be bigger, but both be pretty significant.
OPERATOR
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.
Tarang Amin (Chairman and Chief Executive Officer)
Well, thanks for joining us today. I'm so proud of our incredible team at ELF 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 when we'll discuss our first quarter fiscal 27 results. Thank you and be well.
OPERATOR
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment