e.l.f. Beauty, Inc. (ELF) Earnings Call Transcript & Summary

Thank you for joining us today to discuss e.l.f. Beauty's First Quarter Fiscal 2022 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. Today, we will discuss the drivers of our Q1 results as well as our raised outlook for fiscal 2022. I want to start by recognizing our e.l.f. Beauty team. We delivered Q1 results well ahead of our expectations with Q1 net sales of $97 million, up 50% versus a year ago. Q1 marked our 10th consecutive quarter of net sales growth and our largest net sales quarter ever. We delivered adjusted EBITDA of $22 million, up 40% versus a year ago. Color cosmetics category trends are inflecting positively, fueled by pent-up demand, stimulus money and easing COVID restrictions. The category grew in June above 2019 pre-pandemic levels for the first time this year. We're outperforming our competitors in this backdrop, underscoring the strength of the e.l.f. business model. Our products are resonating in our digitally led strategy, core value proposition and ability to adapt at e.l.f. speed continue to fuel our performance. In Q1, e.l.f. was the only top 5 color cosmetics brand to post retail sales growth above 2019 levels. e.l.f. continued to gain market share with 5.5% of the category, up 20 basis points year-over-year. e.l.f. was the only top 5 color cosmetics brand to grow share above pre-pandemic levels by a wide margin. We are progressing to a multibrand portfolio. In Q1, recharged packaging for W3LL PEOPLE hit shelves, and we expanded our product offerings for Keys Soulcare. We feel great about the progress we're making across the portfolio and particularly the early wins we're seeing with W3LL PEOPLE and Keys Soulcare as we build awareness behind these brands. With the momentum across our portfolio, we're raising our full year guidance, which Mandy will discuss shortly. Our relentless focus on our 5 strategic imperatives is driving results. Let me provide a few highlights from the quarter. Our first strategic imperative is to drive brand demand. e.l.f. Cosmetics has nearly 12 million followers across our digital ecosystem, growing double digits year-over-year. We recently completed our annual Nielsen marketing mix analysis and again saw strong ROI results for our marketing investments, giving us further confidence that our marketing and digital initiatives are driving profitable sales. We see this as a time to lean into our strengths, and we've decided to strategically invest more behind our brand momentum at an expected rate of 15% to 17% of net sales. We continue to find innovative ways to engage and entertain our community, moving far beyond traditional beauty boundaries. We're pushing further into gaming, which resonates strongly with our young, diverse community. In a social survey, over 70% of e.l.f. fans responded that they play video games, and 65% like to watch gamers play on platforms like Twitch and YouTube. We were the first major beauty company to launch a branded channel on Twitch named e.l.f. You, centered around the concept of Game-Up or the intersection between gaming and makeup. We also partnered with TikTok and Enthusiast Gaming to launch the TikTok Gamers Got Talent contest. We far exceeded the challenge benchmarks that we set in terms of engagement rates, video creations and average watch time per person. The TikTok Gamers Got Talent hashtag generated nearly 17 billion views. We're disrupting the digital space as we continue to test and learn on new frontiers. We created Crypto Cosmetics and launched a series of nonfungible tokens or as we call them, Ne.l.f.Ts. Three of e.l.f.'s holy grail products, our Poreless Putty Primer, 16HR Camo Concealer and Ride or Die Lip Balm, were dipped in digital gold and went 100% crypto. In true e.l.f. speed, our 9 limited edition Ne.l.f.Ts sold out in just 9 minutes. e.l.f. was the first beauty brand on Wattpad, the world's largest social storytelling platform. Our #eyeslipsfierce write-a-thon challenge asked users to share original stories of women in their lives who inspire them to be strong, smart and fierce. Our challenge generated the largest number of entries of any female-targeted campaign to date on the platform. We teamed up with Snapchat to test the platform's new augmented reality lenses. These new AR lenses provide consumers with unique makeup try-on experiences for nearly 800 of our SKUs. We're already seeing Snapchatters engage with our products in new and meaningful ways. Our brand-building efforts continue to win awards. In Kyra's recent Gen Z State of Beauty report, e.l.f. Cosmetics ranked as the #2 favorite beauty brand in 2021, up from #9 in 2019, reflecting our growing appeal with Gen Z. We won 2 Cannes Lions, the global benchmark for creative excellence, in recognition of our #eyeslipface campaign and our e.l.f. x Chipotle collaboration. Business Insider named Kory Marchisotto and e.l.f. Board member Kenny Mitchell as 2 of the most innovative CMOs in the world, putting e.l.f. in admirable company with leaders from Chipotle, TikTok, Sephora and LEGO. Congratulations, Kory, Kenny and our entire marketing team. Keys Soulcare, our groundbreaking lifestyle beauty brand with Alicia Keys, is already being recognized as both timely and timeless. We garnered 6 billion global press impressions in the last quarter alone. Alicia is proud, passionate and committed. She was featured on the cover of 5 highly coveted publications around the globe promoting Keys Soulcare and our product offerings with in-depth multipage features. In addition, Alicia supports Keys Soulcare across her social channels. Her post about our new body care offerings generated over 11 million views. Turning to W3LL PEOPLE, our pioneering Clean Beauty brand known for its dermatologist-developed, plant-powered and high-performance products. The brand turned 13 in June, and we are thrilled to celebrate with a new look, new and improved formulas and new products. This quarter, we rolled out new packaging, which is resulting in improved click-through rates on our paid media. The brand is shining across top-tier media outlets, ranking #1 in share of voice of press impressions against its competitive set. We feel great about W3LL PEOPLE, and we are encouraged by the stronger sales trends we're seeing. Our second strategic imperative is a major step-up in digital. Our digitally led strategy continues to serve us well with our digital consumption trends up triple digits on a 2-year stack basis relative to 2019 or pre-pandemic levels. We did see a channel shift between digital and brick-and-mortar in Q1, in line with our expectations, as consumers gain comfort returning to stores and as we lap periods last year where certain retailer doors were closed. Digital channels drove 13% of our total business in Q1 as compared to 19% a year ago and 8% 2 years ago. On elfcosmetics.com, over 50% of our shoppers in Q1 were new consumers. Our new consumers continue to overindex on skin care and sign-ups for our Beauty Squad Loyalty Program. Beauty Squad now has nearly 2.6 million members, up over 30% year-over-year. Our loyalty members are a highly valuable part of our digital ecosystem. They have higher order values, purchase more frequently, have stronger retention rates and drive almost 70% of our sales on elfcosmetics.com. We're excited to announce that we launched our global Keys Soulcare loyalty program in May called Soulcare Rewards. Our rewards page is already one of the top click pages on our mobile site, and reward members are making up an increasing percent of our sales on keyssoulcare.com. Our third strategic imperative is to lead innovation. Our superpowers that center on our ability to deliver 100% cruelty-free, premium quality beauty products at accessible price points with broad appeal continue to resonate with consumers. e.l.f. Cosmetics saw ongoing success this quarter in our core segments, brushes, primers, concealers, brows and sponges, which make up approximately half our sales. We have the #1 or 2 position in all 5 segments and continue to drive market share gains in each. Importantly, we're innovating to build upon our core franchises and deliver newness for consumers. In Q1, we launched our Acne Fighting Putty Primer and our Putty Bronzer, building on the success of our Putty Primer franchise. The consumer response has been phenomenal. Our Acne Fighting Putty Primer is our best-selling SKU in elfcosmetics.com since launch, and our Putty Bronzer is getting rave reviews on TikTok in its first few weeks. We also launched limited Electric Mood collection, which we developed with our annual beauty competition winners. Inspired by 3 musical artists, including Grammy-nominated global superstar Tove Lo, our Electric Mood collection is exclusively available at elfcosmetics.com and with Target. Skin care remains a major focus across our brand portfolio, and we're encouraged by the marketing strategy and innovation pipeline we have planned for e.l.f. skin. In Q1, we launched our Holy Hydration! Face Cream with SPF 30, adding SPF protection to our best-selling face cream. This product is clearly resonating with consumers and is our best-selling skin care SKU since its launch. Keys Soulcare further fuels our momentum and overall product range in this category. Consumers are highlighting the quality of the brand's initial skin care collection with admirable product ratings of 4.9 out of 5 on keyssoulcare.com. We also recently launched new Keys Soulcare starter sets to encourage trial for new consumers. Looking beyond skin care, we remain excited about the multiyear, multicategory innovation pipeline we have planned for this brand. In Q1, we expanded our product offerings into a new category, body care, with 3 new offerings that align with the brand's commitment to restorative rituals. The new body care offerings celebrate the strength and beauty of the body while reinforcing body positivity. The campaign includes individuals of varied shapes, sizes, interests and points of view and asks lightworkers to share their views on how they let go of labels and make time for self-celebrations. [Presentation]

Our fourth strategic imperative is driving productivity and space expansion with our retail partners. With e.l.f. Cosmetics, we continue to see shelf space opportunity with our key retailers. To that end, we're pleased to announce that we've earned space expansion with CVS for fall 2021 and Walmart for spring 2022 in a subset of each of their doors. Internationally, which represents major white space, we're also pleased to announce that we're expanding our shelf space with Boots in the U.K. for spring 2022. Keys Soulcare is elevating and accelerating our global retail strategy. We've launched the brand in 10 countries to date with 3 major retail partners: In the U.S. with Ulta Beauty, in the U.K. with Cult Beauty and in 8 countries across Western Europe with Douglas. We recently launched with our fourth major retail partner, Harrods in the U.K. Keys Soulcare launched online at harrods.com in June and in H beauty retail stores in July. Keys Soulcare continues to open new doors for our brand portfolio internationally, and we remain excited about the global potential we see for this brand. We're also pleased to announce space expansion we've secured for W3LL PEOPLE by leveraging our strong relationships with our retail partners. Ulta Beauty will be featuring the brand via in-line space in a subset of their doors starting in spring 2022. This marks the brand's first in-line placement at Ulta Beauty stores after being featured on a limited edition endcap as part of Ulta's Conscious Beauty program. W3LL People continues to raise the standard for high-performance, plant-powered clean beauty. Our fifth strategic imperative is delivering cost savings to help fuel brand investments. As we spoke about last quarter, and like many companies, we are seeing a global imbalance of containers, which is slowing some of our shipments and increasing our transportation costs. I'm incredibly proud of the e.l.f. Beauty team for how we've navigated these logistics. Even with the container capacity issues we are seeing, we've been able to maintain approximately 95% in-stock levels with our key retail partners. As we look forward, and to ensure we're prioritizing our core business and meeting the ongoing strength in consumer demand, we've decided to forgo our 2021 holiday program, a limited edition collection of gift sets. The impact is embedded in our raised guidance and further reflects our core business strength. We remain confident in our ability to navigate these global supply chain challenges and believe that our supply chain is a competitive advantage that enables us to deliver the best combination of cost, quality and speed. Before I turn the call over to Mandy, let me provide a bit more perspective on the overall strategic framework of our company and brands. We lead with purpose. By standing with every eye, lip, face and paw, we are committed to operating in a sustainable manner and being a responsible corporate citizen for the benefit of our consumers, our investors, our team, the environment and the communities in which we live and work. In fact, Fortune recently named e.l.f. Beauty as one of the best workplaces in 2021. In Q1, we launched a new social impact section of our e.l.f. Beauty website to enhance our ESG policies and disclosures with enthusiastic support from business leaders throughout the company as well as our Board of Directors. We look forward to continuing to share our progress on our ESG journey. Our company was founded 17 years ago with the mission to make the best of beauty accessible to every eye, lip and face. Underpinned by the foundational work behind our 5 strategic imperatives, the strength of the e.l.f. Cosmetics brand has allowed us to expand our portfolio with strategic extensions that support our purpose and values. Today, we have a portfolio of complementary but distinct brands, with each positioned to touch diverse consumer cohorts at different price points. Looking ahead, we believe we're still in the early stages of realizing the full potential of our business and see significant opportunity in fiscal '22 and beyond. I believe we are well positioned to drive growth in both the top and bottom line as reflected in our raised guidance. I'll now turn the call over to Mandy.

Thank you, Tarang. I am pleased to share the highlights of our outstanding first quarter results and our raised fiscal 2022 outlook. We delivered Q1 net sales growth of 50% versus prior year, driven by ongoing momentum across our brand portfolio, better fulfillment rates than we expected and benefits from stimulus-related spending. We also saw an improvement in our performance at Ulta and internationally, particularly as we lapped periods of store closures from a year ago. Gross margin of 64% was down approximately 340 basis points compared to prior year. We saw gross margin benefits from margin-accretive innovation and cost savings. We also implemented price increases on a subset of our SKUs this quarter, mainly internationally. Gross margin benefits were more than offset by changing FX rates and elevated transportation costs as we worked to navigate the global container imbalance. The year-over-year change in channel mix also impacted gross margin as consumers shifted from e-commerce to brick-and-mortar. On an adjusted basis, SG&A as a percentage of sales was 47% compared to 51% last year. Our increased investment behind marketing and digital was more than offset by leverage in our nonmarketing-related spend from the combination of better-than-expected top line trends and taking a sharper look at our expenses. Marketing and digital investment for the quarter was approximately 16% of net sales versus 11% a year ago. Q1 adjusted EBITDA was $22 million, up 40% versus last year, and adjusted EBITDA margin was approximately 22% of net sales. Adjusted net income was $14 million or $0.27 per diluted share compared to $9 million or $0.17 per diluted share a year ago. Our liquidity remained strong with the combination of our cash balance and access to our revolving credit facility sitting at over $130 million. We ended the quarter with $63 million in cash on hand compared to a cash balance of $54 million a year ago. Our ending inventory balance was relatively in line with last year and will build as we approach September. We expect to increase our inventory levels to approximately $75 million to $80 million, driven by longer lead times, higher transportation costs, the addition of Keys Soulcare and W3LL PEOPLE and continued business momentum. We expect our cash priorities for the coming year to remain focused on investing behind our 5 strategic imperatives and supporting our strategic extensions. Now let's turn to our outlook for fiscal 2022. As Tarang discussed, our investments are working. And our momentum and category outperformance is strong, as demonstrated by the 50% net sales growth we delivered in Q1. Our recently completed annual Nielsen marketing mix analysis again showed strong ROI, giving us further confidence that our marketing and digital initiatives are driving profitable sales and indicating an opportunity to invest more behind our brands. As a result, we made a proactive decision to invest behind our strength and take our marketing spend up to approximately 15% to 17% of net sales for fiscal 2022 as compared to our expectation for 14% to 16% previously. This increased investment, coupled with modest pipeline from space gains as well as our expectations for continued business momentum, is supporting our significantly increased top line outlook. We now expect net sales growth of approximately 12% to 14% versus fiscal 2021, up from 8% to 10% previously. We expect adjusted EBITDA between $66.5 million to $68 million, up from $66 million to $67.5 million previously; adjusted net income between $36 million to $37.5 million, up from $35 million to $36.8 million previously; and adjusted EPS of $0.65 to $0.68 per diluted share, up from $0.64 to $0.67 previously. We still expect a fully diluted share count of approximately 55 million shares and our fiscal 2022 tax rate to be approximately 24% to 25%. Let me provide you with a little more color on our planning assumptions for fiscal 2022. First, on our decision to forgo our 2021 holiday program. As Tarang mentioned, we made this decision to ensure we're prioritizing container space for our core business. This is expected to result in an approximately $6 million reduction to net sales largely in Q3. The elimination of our holiday program will impact our Nielsen results during the Thanksgiving through New Year's time frame. The good news is that we still plan to have some holiday-themed deluxe kits, although in smaller quantities than our traditional holiday program. And we plan to have creative marketing around holiday to keep up our consumer engagement. We remain confident in our ability to navigate these global supply chain challenges and meet our ongoing strength in consumer demand, as reflected in our raised guidance. Second, on adjusted EBITDA. Our guidance now implies 9% to 11% year-over-year growth in adjusted EBITDA. Relative to our previous guidance, we do expect some incremental margin pressure from the combination of increased marketing spend as well as costs associated with the space expansion we spoke about. Outside of these factors, our underlying assumptions are largely unchanged. We continue to expect gross margin to be down year-over-year as we face growing FX headwinds and rising material and transportation costs. As we've discussed previously, we are pulling levers to help mitigate a portion of these gross margin impacts, including through select price increases and cost savings initiatives. Within SG&A, we continue to expect to leverage on our nonmarketing SG&A spend, both as we take a sharper look at our key areas of spend and as we start to scale the Keys Soulcare and W3LL PEOPLE brands. As a reminder, fiscal 2022 will be the first year within our 3-year long-term economic model, which targets compounded annual top line growth in the mid- to high single digits, with adjusted EBITDA growth outpacing net sales growth over that horizon. We're pleased to be targeting top line growth well above that range this year. Against the backdrop of global cost pressures and our desire to invest more in marketing, we still anticipate healthy adjusted EBITDA growth in fiscal 2022 and remain focused on expanding our adjusted EBITDA margins over the next 3 years. In summary, we're pleased with our outstanding Q1 results and are excited about the opportunities ahead in fiscal 2022. Our performance over the last 10 quarters, both on an absolute basis and relative to the category, demonstrates how our 5 strategic imperatives are driving results and gives me confidence for the future. With that, operator, you may open the call to questions.

[Operator Instructions] And the first question comes from Erinn Murphy with Piper Sandler.

Congratulations on a very solid quarter. I guess my first question, Tarang, is for you. On the color cosmetics category broadly, it seems like it's had a little bit of traction of late. Can you just share how you're thinking about the sustainability of the category as we move forward? And have you seen anything as it relates to the Delta variant and some of the concerns domestically, certain markets starting to wear masks again? Has that impacted any of the recovery in this category?

Well, we're -- we remain quite bullish on the color cosmetics category. As we talked, June was the first month in tracked data that we saw the category above 2019 levels. So we've seen a pretty good inflection. And I think that's reflective of consumers' pent-up demand for this category, stimulus, easing of restrictions. And so I'd say overall, we're quite bullish on the category going forward. In terms of the Delta variant and any additional restrictions, it's hard for us to tease that out. I think in the backdrop of higher consumer demand as well as stepped-up innovation not only from us but also from some of our competitors, we're liking the trends that we're seeing across each of the core categories within color cosmetics.

The next question is from Andrea Teixeira with JPMorgan.

I'm going to echo the congratulations for the quarter and also to Kory for -- I'm not surprised, but I'm so impressed with her awards. I just want to go back to the guide. And I think, Mandy, you mentioned, obviously, you're accelerating, but that means that after this 50% growth that you had in the first quarter. Can you walk us through what is informing you into the deceleration? Of course, I understand that you're still facing a lot of supply chain issues. And I think we all understood very well through the CPG earnings season that this is real. And -- but is there anything else that you want to highlight that you're seeing in terms of -- I think your answer to Erinn's question is no, you're not seeing any deceleration. And I think the momentum that you've built and increasing -- I was just checking, I think you increased 500 basis points as a percentage of sales in your marketing investment year-over-year, and you're building into 100 basis points higher than you had before. So what is informing you? And then on the same metric, why not taking more pricing to defend profitability and let it flow a little bit more into the bottom line?

Okay. All right, Andrea. Nice to hear from you. And there's quite a few questions in there. So let me just start with where we are in Q1. So Q1 was a fantastic quarter for us, up 50% net sales growth. And a lot of the drivers that we saw in Q1, one, core momentum behind the e.l.f. brand, we continue to see strong trends on the brand. So that was fantastic. We also had better fulfillment rates this quarter than we originally expected, which helped us to get to that 50% net sales growth. We also had the impact of stimulus. So if you recall, we talked about in Q4, and we saw that trickle over into Q1, this third round of stimulus was by far the largest that we've seen from an impact standpoint. And then we also had improved trends at Ulta and internationally, especially as we lapped those periods of store closures last year. So that's really Q1 overall. In terms of top line and the outlook, we really expect those trends to continue on the e.l.f. business. Top line momentum, we continue to see. We are increasing our marketing investment, to your point, and we have seen strong ROI associated with that. So that's also implied in that guidance and as well as pipeline associated with the space gains that we called out. So all of those things are impacting the top line. From an EBITDA standpoint, we are seeing the margins -- a little bit of compression there. And it's because we are investing behind our marketing and digital. So we took our marketing and digital range up to 15% to 17% and from 14% to 16% previously. And as you mentioned, the cost pressures that we see with ocean costs and in the supply chain, that also is embedded within our guidance as well, as well as costs associated with some of those space gains that we mentioned.

And then on your question on pricing, Andrea, this is a brand that does have pricing power. So we successfully executed our largest price increase ever in 2019. We followed that up with another round of more modest price increases more recently in the U.S. but a pretty big price increase internationally that was implemented really in the May time frame. And so we feel good about our ability to price. The reason why we don't want to price right now any further is we see some of the cost headwinds that we're seeing is temporal in nature. The imbalance of containers, we feel, will balance out over time. We saw a good increase in the availability of containers as the quarter progressed. And over time, we would expect those costs to also moderate. So we don't necessarily want to get ahead of us on pricing. But if we saw that some of these costs would be more permanent in nature, then we certainly could use pricing as a lever.

The next question comes from Steph Wissink with Jefferies.

This is Grace Menk on for Steph. I wanted to kind of double-click on the Keys Soulcare kind of strength that you're seeing. Could you talk a little bit about the contribution in the period and then how we should think about it as we look out over the fiscal year?

Sure. So we're not breaking out Keys Soulcare. So we're not breaking out any of our individual brands. But what I can tell you is we're quite pleased with the progress we're making on Keys Soulcare, particularly in the areas of consumer engagement and Alicia's own engagement in the brand. We talked about every time she posts, every time she does something, we see really great consumer response. In addition, we're really pleased with the execution we've had amongst our retail partners, the total store takeover we had at Ulta Beauty. As the brand has started rolling out in Douglas across 8 countries in Europe, that rollout was delayed somewhat by some of the COVID restrictions in Europe. But we're feeling good now that it's starting to roll out. And then our latest execution inherits with H beauty. The brand is really showing up really well and really proud of the execution. So I would say the last thing on Keys Soulcare, the way to think about it is we're building a brand for the long term here. So this quarter was our first expansion in an adjacent category with the launch of our body care line, the first 3 items in our body care line, that very much tie into the brand ethos on self-love, rituals, body positivity, very much builds on what we started with Keys Soulcare. And we have a great pipeline really for the next few years across multiple other categories. So quite encouraged by what we're seeing right now and look forward to updating you more on that as we continue to make progress.

That's helpful. And then just one follow-up on inventory levels. Are you seeing that you've kind of been using inventory that was maybe earmarked for later in the year? And is there a way to kind of -- you've mentioned some of the measures that you're taking. Can you like use domestic suppliers or explore other alternative approaches? Just a little bit more detail there would be great.

Sure. So overall, we feel great about kind of the outlook on inventory and our supply chain overall. I would say that Q1 inventory ended a little bit lower than we would have expected given that we had a 50% net sales growth quarter. And so we talked about the build into the September ending quarter seeing inventory at $75 million to $80 million. And really, we feel that is what we -- where we want to be to support our business, reflective of the longer lead times. We are seeing -- some of the higher transportation costs we're seeing. And then like I said, the continued business momentum and the addition of our brands of Keys and W3LL embedded into that number. So to your question, yes, we are seeing some longer lead times and starting to rebuild our inventory position as we get into the September quarter.

And then for the second part of your question on the supply chain, we feel great about our supply chain in terms of the combination of cost, quality and speed that we're able to deliver. We see this primarily as a transportation issue. We have plenty of capacity from a manufacturing standpoint and our ability to really flex to meet the business needs. So as the transportation situation gets better, I think we'll be in great shape as we go forward.

The next question comes from Dara Mohsenian with Morgan Stanley.

Two questions. Just first on the transportation issues. I guess it really didn't seem to impact fiscal Q1 all that much, given you were up 50% year-over-year. And as you mentioned, the fill rates were healthy in the 95% range. So I just wanted to understand is, are things getting worse potentially post the June quarter? Do you think things are better? In general, the tone sounded more constructive. But just given the growth we saw year-over-year in Q1, it didn't seem to be a big issue for you guys. So I just wanted to get a little bit of update in terms of what we should expect going forward on that front.

Yes. Dara, what I'd say is I'm really proud of the way the team navigated the container imbalance. So the stat we use is, we're able to maintain 95% customer in-stock levels. Our fulfillment rates were lower than that, but our team was able to make sure through our penetration and our customer supply chains that they had the right inventory by item level to be able to maintain strong in-stocks. We have seen more container availability. So we hope to get those fulfillment rates up even further. And there'll be a temporary hit to our customer in-stocks as we work through that. But overall, pretty confident in terms of our ability to meet the consumer demand as we navigate through this situation.

Okay. And then just to follow up on Andrea's question. The balance of the year revenue guidance is -- it's only about 3% to 4% at your midpoint. I guess if you add back the holiday program, it'd be more like mid-single digits. But obviously, it's a pretty big slowdown from what we saw in fiscal Q1 as well as fiscal Q4 and even last year's full fiscal year during COVID. So you generally sounded pretty positive about most of the underlying dynamics in the business. And obviously, transportation is a limiting factor. But it doesn't sound like it's prohibitive at this point. So I'm just trying to better understand that revenue guidance in the balance of the year and if there's anything significant besides the holiday program that would really limit revenue growth a lot more than what you've already seen recently.

No. So the holiday program is the key factor in that. We called out $6 million related to that, that we are pulling out of our forecast as well as we do, as I mentioned earlier, stimulus, in the base as well as we get into the back half of the year, Q4, that we're cycling through. So outside of that, we feel confident of our core business momentum and expect to see that growth continue for the balance of the year.

The next question comes from Linda Bolton-Weiser with D.A. Davidson.

So you talked about the impact on sales of not doing the holiday program. What would be the effect on mix and gross margin? Are the gift sets actually a little bit lower gross margin?

So we haven't given specifics on the holiday program and the gross margin impact. But I would say just from a mix standpoint, deluxe kits versus -- is that what you're asking, deluxe kits versus our traditional holiday program? I would say there's not a major difference in that.

Yes. Just adding a little bit more color to that, Linda, the decision of foregoing holiday, we like our annual holiday program. It's a great way of engaging consumers, but holiday kits have a very high cube. So it takes about 4 containers to get the same amount of product as we can get on 1 container. And so given the strength in our consumer demand really prioritizing our core SKUs, deluxe kits help us make up for part of that gap. But in addition, we will have pretty strong consumer engagement efforts as we've had and stepped up really throughout each of the quarters. So we feel we can navigate through it. It will be a temporary piece and definitely feel good about the decision to prioritize our base business.

And then -- so it's great to hear you talk about getting some additional shelf space in the international markets. So how does that -- as you grow internationally, how does that affect kind of your margin over time as you get bigger internationally? And how does it expect -- affect your need for working capital?

So on the margin side of things, and I think we've talked about this before, we really look at our business from a margin agnostic standpoint. So whether that volume is coming from the U.S. or internationally, it's relatively in line with one another. From a cost of capital and a cash flow perspective, there's also not much outside of inventories that we have that's required behind that. And it's very similar to our U.S. business in terms of shelf space expansion and fixturing and things like that. It's just normal course of what we see even here in our domestic business.