Good morning.
When I first talked with e.l.f. Beauty CFO Mandy Fields this year, the cosmetics company was at 16 consecutive quarters of net sales growth. The favorite brand of Gen Zers (and award-winning actress Jennifer Coolidge) just notched 19 quarters.
“Not only is it net sales growth that we’re seeing, but we're also seeing our profitability increase,” Fields tells me. “Our adjusted EBITDA was up 122% versus last year.”
I sat down with Fields on Wednesday before e.l.f. Beauty reported earnings for the three months ending Sept. 30. Net sales increased 76% year over year to $215.5 million, beating Wall Street’s expectations. In the previous quarter, sales were also up 76%. The brand has continually outperformed the market this year. UBS analyst Peter Grom rates ELF with a Buy with a price target of $138.
When e.l.f. began, its products were only sold online, and the company still sells directly to consumers on its digital channel. In the latest quarter, digital consumption trends were up 75% year over year. Loyalty program members drove almost 80% of sales on elfcosmetics.com. Target and Walmart are the company's two largest mass retail customers.
So what’s in e.l.f. Beauty’s secret sauce for growth? A mix of quality products, competitive prices, marketing, and innovation, according to Fields.
Regarding prices, “We're at $6 on average versus $9 for others in the mass space or higher, and then when you compare to prestige [cosmetics] they're over $20 on average," Fields says. “e.l.f. still is a sweet spot of the value proposition, but also the quality that our community is looking for. If consumers have to pull back on spending, I feel that e.l.f. is well-positioned.”
Tiktok-popular e.l.f. remains the No. 1 cosmetics brand for Gen Zers, increasing 13 points year over year to 29% for female teens, according to Piper Sandler's survey for fall 2023.
“In the quarter, we had some really exciting things from a marketing standpoint,” Fields says. For example, the company aired its first-ever television commercial in February during Super Bowl LVII featuring Coolidge's comical take on e.l.f. 's popular Power Grip Primer.
That inspired a collaboration with the actress. “We did a Dirty Pillows Lip Kit with Jennifer Coolidge, and that sold out in two hours,” Fields says. “It was so popular people went crazy for it.”
She continues, “Kory Marchisotto, our CMO, and her team, they just come up with the craziest ideas and I love them for it.” But e.l.f. also has the infrastructure to execute quickly: “Our time to market is about 24 weeks, on average," she says. "And we can even be faster than that—13 weeks in some instances.”
Brand awareness in the U.S. has doubled from 13% in 2020 to 26% in 2023, according to the company.
“I think that's really attributed to not only penetrating further with Gen Z, but also with millennials and Gen X, bringing them into e.l.f. as well,” Fields says. “Expanding to other demographics is why we leverage partnerships like with Jennifer Coolidge.”
e.l.f. Beauty's updated outlook for fiscal 2024 reflects an expected 55-57% year-over-year increase in net sales, as compared to an expected 37-39% increase previously. The company’s organic growth will account for 39%-48% of the growth, and the acquisition of Naturium—a skincare brand they acquired for $355 million—will get the company to 57%.
As CFO, Fields not only knows all about e.l.f’s products, she uses them. What’s her favorite? “O Face lipstick; we launched that about six months ago,” she says.
Sheryl Estrada
sheryl.estrada@fortune.com
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