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

Closing out our conference this year and closing out our tenure in Boca is the management team from e.l.f. Cosmetics, making their first, but hopefully not last appearance at the conference. And before I start, please join me in thanking e.l.f. for their generous sponsorship of the conference, but their awesome booths set up outside, allowing CAGNY members to demo their products and speak with their experts. Thank you. I actually stopped by the booth yesterday and they got all of this, looking good for once, which is no easy task. And for those of you in the front few rows today, you can see that I did not stop by the booth. So what a difference a day makes. e.l.f. represents one of the most dynamic and exciting growth stories in CPG today. The company's incredible value proposition, breakthrough franchise-centric innovation and best-in-class digital marketing capabilities have allowed the company to average over 20% sales growth per quarter for the past 20 straight quarters. In my opinion, they're just getting started as there remains tremendous growth opportunity ahead through share gains in core categories, pushing further into underpenetrated segments and continuing to expand internationally. Okay. I'll stop gushing. So here with us today, we have Chairman and CEO, Tarang Amin; Senior Vice President and CFO, Mandy Fields; and VP of Corporate Development and Investor Relations, KC Katten. With that, I'll hand it over to Tarang.

Hello. I'm Tarang Amin, Chairman and CEO of e.l.f. Beauty. It's my pleasure to be here today. As a way of background, I've got over 33 years in the Consumer space. Having started my career at P&G was part of the team that relaunched Pantene in the early '90s, took a $50 million hair care business, transformed it to a $2 billion global market leader. I subsequently worked most major consumer verticals from paper to food, pet, home care, health care, nutritionals, I'm absolutely passionate about building brands. The best way I know how you build brands is you lead the innovation in the category. But what I love doing the most is [indiscernible] these high-performance teams, always brag that in 30 years of being a consumer, I've never had a business we haven't grown with multiples of the category and always attributed to the team that we brought in and got to operate under a high-performance team culture. I'm joined here today with Mandy Fields, our Senior Vice President and Chief Financial Officer. Mandy is an exceptional leader. She has over 20 years of finance experience, having started her career in investment banking and were subsequently up at the Gap, Safeway, Albertsons , where she led their $10 billion private brands group, who's the CFO of BevMo! and has been the CFO of e.l.f. Beauty for now 5 years. She has a terrific track record of financial stewardship and enterprise leadership. Also with us today is KC Katten, our Vice President of Investor Relations and Corporate Development. KC also has a very strong background in finance, also having started in investment banking and also as an equity -- in equity research. KC has done a great job with our Investor Relations and also spearheads our corporate development and M&A. We're very pleased to be here today. As Andrew said, this is our first time presenting at CAGNY, and we were honored with the very last slot of the entire week. It is an honor, right? Nevertheless, we are happy to be here. So why don't we get through the required disclaimers, and we'll get straight to the heart of the matter. The only thing standing in the way of you getting home is our presentation today, right? So we're going to cut straight to the chase. And I'm just going to give you the theme of what we wanted to talk to you about today, how are we creating a different kind of beauty company. And for that matter, a different kind of company period. So if those of you who feel you've got it, you can leave now and go home. Those who'd like to learn a little bit more, we'll unpack this a bit. We're going to talk about how we're a different kind of company in our results, our ethos, who we are, what we do, how we do it and most importantly where we're going. Let's start with how we're different in our results. Over the past 5 years, our stock price has appreciated over 1,500%. Yes, I said over 1,500%, making us the top-performing stock on the New York Stock Exchange out of 1,615 companies that have been listed during that time. Now I know some of you are thinking right now, oh, heck, how did I miss that one, right? Don't worry. I've got so happy news for you, but you're going to have to listen to the end. So what drove the stock performance? If you look over the last 5 years, our CAGR -- net sales CAGR has been 27%, accelerating the last year, the top end of our range, 71% for the year. We've expanded gross margins by 930 basis points, 280 basis points this year alone. And on adjusted EBITDA over the last 5 years, we've had a 28% CAGR. And again, if you look at the top end of our outlook, we're going to deliver about 88% this year. We just reported a couple of weeks ago, our -- and we did -- just reported our 20th consecutive quarter of net sales growth. That makes us one of only 5 public consumer companies out of 274 that's grown 20 straight quarters and averaged at least 20% growth during that time. We've significantly outperformed the category, growing the category by over 14x, and we've more than doubled our market share. So now we're the #3 player nationally in the U.S. mass cosmetics category. In fact, we're the only top 5 brand to grow share during this 5-year period by a pretty significant basis. Everyone knows the importance of Gen Z, where they represent about 40% of the consumers globally, where I'm very happy to say we're the #1 team favor cosmetics brand for 4 consecutive seasons. If you dive into that position in color cosmetics, we're the clear leader, double the mind share of the next highest brand and significantly ahead of all mass and prestige brands. In skin care, a category we entered only a few years ago, we're already a top 10 brand amongst teens with SKIN. And probably most surprising, we're also the #8 teen favorite shopping destination, which is, if you look at that list of names up here, we're the only single brand site on this list amongst major retailers. That strength we have with the consumer translates to being the most productive brand on a dollar per foot basis at our 3 biggest customers, Target, Walmart and Ulta Beauty. Now it might sound what I'm talking about is reeled off a bunch of stats that this is easy, but it's not. In the color cosmetics and skin care space, just tracked by Nielsen, there are over 1,800 brands. Yet very few of them have been able to scale. Only 28 brands have more than $100 million of retail sales. e.l.f. is in the rarefied company of being only 1 of 5 brands with more than $700 million in sales. Quick snapshot, we're approaching $1 billion in net sales, $220 million in adjusted EBITDA, and our 470 employees are driving about $10 billion in market cap. You might be asking, how the e.l.f. did we do it? Well, sometimes, honestly, I ask myself that, too. It all starts with our ethos. Our ethos is different than other companies. e.l.f. was born to disrupt. It's in our DNA. We were founded 20 years ago selling color cosmetics for $1 over the Internet. Now that was 2004, pre iPhone. People didn't think you could sell color cosmetics over the Internet and certainly, you could make money at it at a $1 price points. But that disruptive gene has kind of stayed with us throughout our history. 20 years later, we still believe that overpaying for beauty doesn't suit anyone. But you don't have to take my word for it. Just listen to Mikayla, one of the biggest influencers in beauty, talking to her 15 million followers. [Presentation]

Our vision is to create a different kind of beauty company by building brands that disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. Our brand portfolio consists of our namesake e.l.f. Cosmetics brand, our e.l.f. SKIN brand introduced a few years ago, both offering the best of beauty at accessible prices. Our Keys Soulcare brand, a groundbreaking wellness brand that we created with Alicia Keys, W3LL PEOPLE, a pioneering plant-powered clean beauty brand and Naturium, a clinically effective biocompatible skin care brand we bought just 4 months ago. These brands are distinct, they're complementary, but are united by our mission to make the best of beauty accessible to every eye, lip, face and skin concern. Mandy, you want to tell them how we're different in terms of who we are?

Can you guys hear me? There we go. All right. So I'm going to speak about how we are different and who we are as a company. And really, one, I want to say thank you for having us today. Again, to reintroduce myself, I'm Mandy Fields, I'm the Chief Financial Officer here at e.l.f. Beauty. As Tarang said, I've been here 5 years. And I'll just echo his sentiments that really it's the best team that I've had the opportunity to be a part of. And we are a team of e.l.f.ing superheros, and so I say e.l.f.ing, you just heard Tarang say, how the e.l.f. did we do something. I hope you had a chance to go to the e.l.f. [ verse ] outside and experience the Apple Vision Pro and all the fun things we have going on there. But you'll hear us use a lot of e.l.f. isms, we call them. We don't use a lot of acronyms at e.l.f., but we do use e.l.f. isms. And it's part of the fabric of how we communicate with each other and our culture. And so that amazing team of e.l.f. ing superheroes is fantastic, highly reflective of the community that we serve. We're over 70% women, over 65% Gen Z and millennial and over 40% diverse. We take a One Team, One Dream approach in everything that we do, even down to how we incentivize our employees. If we think about the short-term incentive structure that we have, every single person in the company is based off of bonus off of one metric, and that's our adjusted EBITDA. That's decided by the Board at the beginning of the year, and there's transparency in the organization on how we're tracking there. For the long term, we believe we're one of the only public consumer companies that grant equity to every single employee every year. That strongly aligns the long-term objectives of our employees, with that of our shareholders, and it's really been phenomenal to see creating that passionate ownership within the company. That passionate ownership translates to very strong employee engagement. Our employee engagement scores are off the charts, 19 points higher than that of the consumer goods industry benchmark. And we're being widely recognized for that. U.S. News recognized us as one of the best companies to work for, and Forbes recognized as one of the most successful companies. That strong engagement is translating to strong productivity. On a sales and profit per employee basis, we're 3 to 5x more productive than that of our beauty peers. And we're proud of the culture that we've created at e.l.f. And we're also proud of the work that we've done to champion women and diversity in the highest seats of decision-making power. At a 4,200 publicly traded U.S. -- publicly traded companies in the U.S., we're 1 of 4 that has a board that's at least 2/3 women and 1/3 diverse, a stat so compelling, even Jim Cramer took notice. [Presentation]

Incredible. And we're also making significant progress from an ESG perspective and are now considered amongst the best in class in beauty. We're also a different kind of beauty company in what we do. [Presentation]

At e.l.f., we have created a set of superpowers that we believe create our competitive moat. With e.l.f., consumers do not have to compromise. You can get premium quality at accessible price points with broad appeal, that's vegan, cruelty-free, clean, and we're the only beauty company to be fair trade certified. While any one company might be able to kind of pick one of these out and recreate that, we believe it's the unique combination of all of these that really creates that engagement with our consumers. That set of superpowers also allows us to create these holy grails. And so if you don't know what a holy grail is, let me explain. Holy grails are created from inspiration from our community and inspiration from the best products in prestige, adding our e.l.f. Twist and then bringing it to market at an extraordinary value. A great example of that is one of our latest innovations, our Camo Liquid Blush. We just introduced this at a $7 price point, incredible. You could buy 3 of our Camo Liquid Blushes for one of the prestige item. It's an item that maybe you've seen on your TikTok feeds. But if not, we're going to go ahead and show you what our community is saying about it because it's been a viral success. [Presentation]

So Mikayla is saying that she's unwell, so I have 2 children. And so I know the lingo, unwell is actually a good thing. Okay. So we're glad that Mikayla is unwell. And maybe our consumers are unwell, too, in a good way when they see our price points. Average, our price points are $6 that compares to $9 for other mass brands and over $20 as you start to look at prestige. We believe that unique combination of bringing the best of beauty at these extraordinary pricing is really driving category expansion. [Presentation]

Maybe that's how Andrew was feeling earlier today after his make over. All right. But when we talk about category expansion, we look at our Poreless Putty Primer as a great example. So years ago, there was a prestige item introduced at $52 in this Putty Primer format. We took a look at it, sprinkled some e.l.f. magic, added our e.l.f. Twist and were able to introduce it at an incredible $8 price point. And what we've seen is that there's a lot more people wearing primer now. We sell 9x as many units as that prestige item. And what we've seen is that both have grown over time. So that really indicates to us that we're bringing more people in, millions of more people in to the category and see in that category expand overall. The category expansion translates to strong unit volume for e.l.f. Unit volume has been a key driver of our results over the last 5 years and leading our results in the last year. Again, indicating to us that as we create a different kind of company that we are expanding the pie, creating more access for consumers to participate in this category. I'm going to pass it back to Tarang on how we do it, and you all are with me, $5 if we get Tarang to do this dance.

Part of having a high-performance team is you get to know each other really well. And Mandy knows I'm a terrible dancer. So I'm not going to do this dance. But I will tell you how we do it. We've had a set of 5 strategic imperatives that we've been executing on over the last number of years that have driven our success. Our first strategic imperative is build brand demand. We're an e.l.f. ing entertaining company. What do we mean by that? It means we find the best of beauty, culture and entertainment and take the strength that we have digitally as a digitally-native brand and be able to apply that across various platforms in a way that delights multiple generations. Let me show you a few examples. We were one of the first beauty brands on TikTok when we -- our first hashtag challenge, I think had something like 3 billion views well before most people knew what TikTok was. By the time some of our larger competitors came to try to copy us with their own hashtag challenges, they're throwing money at TikTok, we had already leapfrog them by partnering with Simon Fuller, the co-creator of American Idol to create a rock band on TikTok and have a makeup artist accompany them. That hashtag challenge delivered 15 billion views, right? So our ability to go deep in a particular platform, be native in terms of how people are using it is one of our key strengths, regardless of how many competitors they are there. Second, we went to -- we had an insight that many of our consumers are gamers, almost 70% of them. So we partnered with Lufu, world's second most popular female gamer and created a channel on Twitch on female empowerment. We took the strength and the signals we were seeing there and then created a branded experience on Roblox. It's currently the #1 branded experience on that platform with a 96% rating and over 6 million plays in just the first month. We're always testing and learning on new frontiers. We're not afraid to testing things. In fact, we're the first beauty experience for the Apple Vision Pro. Each of these are small examples of where our real strength lies. If you look at the majority of our marketing spend, it's digitally oriented in PR in influence as in a way that really engages and entertain our community. And because of that engagement, other like-minded disruptors are attracted to us. A few years ago, we did an unexpected collaboration with Chipotle, another disruptor in the space, show you a short video on what that was all about. [Presentation]

Most people can see Chipotle coming or Duncan or American Eagle or Jennifer Coolidge, and you can see each subsequent collaboration builds billions and billions of impressions and interest in the brand. There's something to be in the center of the cultural [ Zycus ], and that's where e.l.f. is and we have this ability to continue to fuel that both digitally and in all the different types of marketing we do. Through all of these efforts, in the last 4 years, we've doubled our unaided awareness. Now I've been in consumer a long time, and I know how hard it is to increase your unaided awareness, getting a 1 point or 2-point increase is a pretty good thing. So in 4 years to be able to double it to 26% tells us our digital efforts are working. And when we increase that unaided awareness, it wasn't just amongst our stronghold of Gen Z., we're now picking up other consumer cohorts faster than just about any other brand. If you look at how many millennials we've picked up in terms of unaided awareness, Gen X, not on this page, even [ lot next ], you see strong affinity for the brand across multiple age groups. As proud as I am of the 26% unaided awareness, we did that faster than most of the brands have ever done it. A lot of the brands that we compete in are at least 80 to 100 years old. We still have a long way to go and we have the ability to continue to drive that awareness to bring more consumers into our franchise. As part of our efforts to broaden awareness, we traditionally -- we typically don't do traditional TV or print. It's a much different engagement model than legacy beauty players. But what we will do is take an insight and seize on it and do at first, what nearly seem like a stunt, but it's actually a pretty big strategy behind it. Over a year ago, we were studying Super Bowl audience, and we noticed that almost half the audience was women, only 1% of the ads were beauty ads. So we jumped on that insight. We partnered with cultural icon, Jennifer Coolidge, to dramatize the stickiness of our Power Grip Primer, the #1 SKU in all of color cosmetics, and then aired that spot in a few select markets during the big game. Let's take a look at the spot. [Presentation]

The response from our community was phenomenal. That effort had over 60 billion global views and was rated #1 in brand sentiment out of all 104 ads showing on the big game. What we do at e.l.f. a lot of times is when we start seeing a signal, we have what we call e.l.f. speed, the ability to jump on an insight and take it to the next level. So given the success of that ad, this year, we decided to do the national buy, increasing our reach 3x. What we did this year is we curated an ensemble cast starring Judge Judy and the cast of Suits. We dramatized our Halo Glow Liquid Filter, which happens to be our biggest franchise, really touting the value proposition of e.l.f. overall. Let's take a look. [Presentation]

It's still early, but in its first week, we generated over 92 billion press impressions. You can see how this keeps growing and our model continues to be able to feel even higher and higher results. Our second strategic imperative is to power digital. As a digitally native brand, it sometimes still surprises me that we're the only top 5 brand that has its own direct-to-consumer site. Our digital consumption over the last 5 years has grown at a 60% CAGR, accelerating to over 100% in the past year. Our penetration is now 20% of our overall sales, up from about 8% just a few years ago, and we have strength across various platforms. If you think about our elfcosmetics.com site, Amazon, we're one of their fastest-growing brands or even TikTok shop, given the strength we have as a preferred partner, they came to us to see if we'd be the beta for take TikTok shop, and we're seeing great results there, too. Across our entire digital ecosystem, we're seeing very strong results. One of the big drivers of that success is our Beauty Squad loyalty program, which now has over 4.5 million members and is growing over 30% a year. Beauty Squad accounts for over 80% of our sales on elfcosmetics.com, but perhaps even more importantly, is a rich source of first-party data. We use that data to improve the effectiveness of our marketing. Our third strategic imperative and perhaps the linchpin of our entire strategy is to lead innovation. We all know the power of having the #1 or 2 position in any subcategory. If you went back to 2018, we had the #1 or 2 position in 8 segments of the color cosmetics category. If you fast forward to today, we have the #1 or 2 position in 18 of the segments. The way we got this #1 or 2 position is what Mandy described in our Holy Grail innovation approach, the ability to replicate these holy grails in category after category, quickly establishing leadership in that category and our ability to continue to grow. By the way, those 18 segments represent almost 80% of our sales. So pretty defensible in terms of who look at our market position and how we continue to grow share in each of those. The other difference in our innovation approach is unlike a lot of beauty companies, which tend to launch a lot of products each year and then have to go and proliferate more SKUs to anniversary those launches. Our focus is on building growing franchises. Our 5 biggest franchises have grown year after year. When we launched something new in the franchise and a lot of times, we'll take that core benefit into another subcategory, the entire franchise grows. It's one of the real powers of our model that ensures power SKUs, and sustainable innovation progress because you're not now feeling a leaky bucket, but you're actually building the entire franchise. Our innovation, our ability to do holy grails is enabled by the integration to a unique supply chain model. I'll take just a minute to explain typically in beauty, you either manufacturing your own products or you use third parties and contract to them to make your products. Both have pros and cons. A lot of times when you manufacture yourself, one of the big advantages of that is the quality that you're able to achieve. And if you're vertically integrated, pretty decent cost position, of course, with a much higher capital build and everything else that comes with that. On the other hand, if you contract out, sometimes you [ can ] get good cost position depending on what the category is. But there's no incentive for that third-party manufacturer to invest in quality systems. So the quality can be really uneven. Our system, which we now almost have been holding for about 20 years, especially in the last 10 years, is to use like-minded suppliers, so an asset-like kind of third parties that are like-minded and many of whom have grown up with us, but combine that with the deep multifunctional expertise of our team. So it's our quality people in those facilities. It's our lean manufacturing techniques. That combination has allowed us to attain the best combination of cost, quality and speed. Particularly over the last 10 years, I would say our quality has gone up every single year in a way that enables us to replicate these holy grails over and over again. Mandy, you going to talk about how this goes hand in hand with our productivity model?

All right. Am I live? All right. Driving productivity. So what sets us apart on this productivity model? As Tarang mentioned earlier, we're the #1 most productive brand in our top 3 retailers, Target, Walmart and Ulta Beauty, and that's on a dollars per linear foot basis. We're also the most productive brand with our top 2 retailers in the U.K., Superdrug and Boots, same dollars per linear foot basis. And let me explain our productivity model a little bit. We are proactively looking at our SKUs each year. We rotate out about 25% of those annually. We don't let our retailers tell us when something is dying at shelf, we are proactively doing that. And it's really driven by the insights that we get from our Beauty Squad, our digital, elfcosmetics.com, we're able to leverage those insights to really understand what consumers are going to be most attractive to. That's enabled us to keep our SKU count relatively consistent as we've gone through. And our focus on these power SKUs or holy grails has allowed us to double our sales per SKU over the last 5 years. A great example of that productivity model in action is what we saw at Ulta Beauty last year in our fiscal '23. We saw growth at over 70% at Ulta without any space expansion. And we have a track record of gaining space, and we believe that track record has been fueled by the productivity we're able to deliver at shelf. If you take a look at how we net out versus the leading brand in the category, you can see that there's still a significant opportunity for us to continue to gain space. And we believe continuing to keep our focus on driving that productivity model will result in the output of additional space over time. Our fifth strategic imperative is delivering profitable growth. We have a track record of delivering exceptional, consistent category-leading sales growth. That's been enabled by the investments that we've made behind marketing. We've taken our marketing investment levels up from 7% in 2018, up to 24% today. And what gives us confidence to continue to invest behind our marketing and digital initiatives are the strong ROIs that we see. The ROIs that we've been seeing are multiples above industry benchmarks. And that really underpins our flywheel approach. We invest in marketing and digital to drive top line growth that enables us to leverage our cost structure and expand our EBITDA margins. We have a history of creating value in this company. Our net sales growth has been over 27% over the last 5 years, with adjusted EBITDA and adjusted EPS outpacing that growth. That adjusted EBITDA margin expansion has been supported by both gross margin expansion and leverage in our non-marketing SG&A. We also have a history of strong cash flow generation, and we have a strong balance sheet with less than 1x leverage on a net debt basis. Our cash flow priorities remain on investing behind our growth initiatives and driving our strategic extensions. We feel great about the investments in team and infrastructure that we've done over the last few years. We feel that we have a great road ahead of us with the capacity that we've built and the growth on the road ahead, we feel like we're in a great position. And we believe we are just getting started. I'm going to pass it back to Tarang to take us home literally, take us home.

So this is the last chapter we have in terms of where we're going. So one of the questions we get from investors sometimes, is it I missed the party on this incredible performance? And this is the happy news I told you about at the beginning of this talk. Our answer is, we believe this party is just getting started, right? And what gives us proof points on that is if you look at what we've done over the last 20 years, we've been able to deliver an exceptional consistent category-leading growth. We've developed our superpowers and set of competitive advantages on our value proposition, powerhouse innovation and marketing engine. And we have what we believe is the most white space of anyone in our industry in terms of the top brands. Another way I frame it sometimes for investors is think if -- you can see the ages of some of the other brands here. And some of them were over 100 years old, a lot of the companies in terms of legacy companies we compete against anywhere from 60 to 100 years old. The way I like to frame it for people is if you had the opportunity to invest in L'Oreal or Estée Lauder at 3-year 20 mark, would that have been a good investment? I believe so. I also believe we're an incredibly good investment under that same piece. And we have white space in 3 critical areas: color cosmetics, skin care and international. Let me go briefly through each one of these. Color cosmetics, where we started. U.S. mass cosmetics is about a $7 billion category growing low single digits. As we said, we've more than doubled our market share to the #3 position, almost a 10% market share. Yet if you look at Target, our longest-standing national retail customer, we're the #1 brand they carry by a pretty wide margin at an 18% share. And if you look at how we've driven that growth at Target, mainly, it's been through the productivity model that Mandy described relative to space and a good balance between innovation-driven AUR growth and unit growth. Target becomes a really great proof point for other customers because the only [indiscernible] Target and everyone else is at a 4- to 5-year head start. We've previously disclosed on some of our calls that Walmart and the drug channel will be rewarding e.l.f. more space as they seek to catch up to Target. But Target is not standing still. In the last 4 weeks, in Nielsen, e.l.f.'s share of Target has exceeded 20%. So we think this is a really good dynamic that's healthy for the brand and gives us belief that we can again double our market share again over the next few years. In skin care, it's perhaps even a bigger opportunity. [Presentation]

U.S. skin care -- mass skin care is about a $6 billion category, and it's actually been growing at a pretty healthy clip. If you look at our performance, actually, before you look at our performance, importantly, we feel the same dynamic of these holy grails can work in skin care. And we've seen proof of that. Our ability to take inspiration from prestige in our community and introduce those high-quality products and extraordinary value absolutely is relevant to this category. And it's allowed us to significantly outperform the category at least 6x. We've tripled our market share and are now the #13 position in skin care. And I remind you, e.l.f. SKIN was only introduced in the last 5, 6 years. We have a long runway to grow. We've been increasing our rank every single year, but the #1 brand has a 14% share. So e.l.f. SKIN alone, we feel has a great runway. Now also added Naturium, the clinically effective biocompatible skin care brand, one of the things we loved about Naturium is how it complements the e.l.f. SKIN brand. It's also a brand that's exhibited exceptional growth, an 80% CAGR over the last 2 years, and it's quite different than e.l.f. SKIN. So we have 2 incredible assets to pursue our skin care ambitions. Naturium also helped us double our penetration in skin care to 18%, and it has a ton of white space, reminds me actually a lot of e.l.f. in the early days, where the distribution is primarily Target and online. International. International is a massive opportunity. Our international penetration or a proportion of our business is about 14% as compared to our global peers at over 70%. And in some respects, we've already seeded our international growth, our dominance on global social media and the global audience we have in terms of how much of our feed goes outside the U.S. has already created consumer demand for the brand. If you take a look at our International business, it's been growing over the last 5 years at a 37% CAGR. It's accelerated this past year to 113%. If you look at that 113% growth, it's from our primary 2 countries, Canada and the U.K. We have a very focused and disciplined expansion strategy. Just take a look at the U.K. We entered the U.K. first with our website a number of years ago. Our first retail customer, and our preferred approach is to find a retail customer that we can partner with. We decided to partner with Superdrug. Our success there prompted Boots to come to us and us to carry the brand. And what we've seen is incredible growth in the U.K. and also increasing our rank position every single year. We're 10x growing our consumption 10x where the market is or now the #6 brand with plenty of room to grow to get to #1. We recently launched the brand in Italy, and it demonstrates that phenomenon I was telling you about in terms of global reach from our social. When we went into Italy, we went into Douglas, Italy. We asked Douglas, how much do you want us to customize what we do for the Italian consumer. Their response is not much. The Italians love hot American brands, and they know your brand. Sure enough, the day we launched, lines went down the entire block. And soon after, we became Douglas' #1 brand, not just in mass, but across prestige. So we feel there's a great pent-up consumer demand for this brand as we have this focused expansion plan. So the white space we have is immense in cosmetics, skin care and international. I hope we're able to show you a little bit of what makes us a different kind of company. Certainly, you start with wanting to be a different kind of beauty company, really continues to transform to be a different kind of company, period. Fast Company reemphasized this recently when they named e.l.f. one of the world's most innovative companies, the only beauty company on that list. We're in the presence of companies like OpenAI, Microsoft and NASA, which shows anything is e.l.f.ing possible. Thank you. And with that, KC, I think we can open up the floor to questions.

Hello. Great. Olivia Tong with Raymond James. Thanks for the presentation. You've clearly generated growth clear well, well, well ahead of your peers. So can you talk about some of the drivers of that growth going forward? How much is the shelf space expansion in the U.S., particularly in Walmart with the increased distribution, other retailers' categories, for example, and of course, international, which is still pretty [indiscernible]?

Sure. So I would say one of the things that gives us the greatest confidence, some of the slides Mandy showed that -- and don't get me wrong. We're going to continue to pick up space. Everyone loves space because you [indiscernible] model it. But the biggest driver of our growth is our productivity model. Our fuel from our marketing and our innovation engine and the productive -- the proactive management on those shelves has continued to drive it. So if we did nothing else than the productivity growth, I'd be very confident about our growth. But on top of that, we are continuing to pick up space. We've picked up space every single year. We're still dramatically underspaced, even Target. I'd just say, in the last 4 weeks, we're over a 20% share of Target. We're nowhere near 20% share of their set if you can think about their space there. So even our most established customer, we have a lot of room to grow. I look at the sets that we have a drug, while they're making progress, we have a long way to go in space. International is the other one. As we think through, you hear over the next coming quarters, other markets will be entering. But even with those other markets that we'll enter, it's amazing how much more growth we have in Canada and the U.K. We're pretty confident in terms of the trajectory we're going through there. And then in terms of category, I would say our biggest category focus, obviously, other than the potential we have within color is skin care. And we have 2 of the best assets to go after that growth and what's net new there. Mandy, anything you'd add?

I would just echo the comments on the productivity model. I mean even if we think about internationally, I spoke about U.K, Superdrug and Boots being the most productive brand that they carry, that gives us a great proof point for our portability in addition to the social presence that we have, that productivity model being able to replicate across the different countries, that proof point gives us a lot of confidence.

Yes. I mean if you tell me we're going to be within a month, the most productive brand that Douglas, Italy, carried a market we weren't -- we've never even been in, I would have said, no, that's not possible. So that's another proof point for me as soon as we went in that model works, the pent-up demand is there. So like I say, it's going to be a focused strategy. You're never going to hear us like we're going to launch in 40 countries all at once. We like this approach of going in a country, really nurturing the customer relationship, the consumer relationship and building from there. Just like we've done in the U.S., that will be our approach in many of these other markets.

Andrea Teixeira, JPMorgan. I wanted to go back to what, Tarang, you mentioned on the skin care side and how Naturium would complement your skin, e.l.f. SKIN? And how the stats will be the opportunity to expand through obviously, a few retailers that are currently carrying Naturium into the retailers that have been so successful with e.l.f.? And how we should expect that chronogram to come through reality and perhaps international expansion of Naturium?

Yes. So I'll start, Mandy. You add. So one of the things we really liked about Naturium, if you think of e.l.f. SKIN, e.l.f. SKIN has this incredible value proposition, $9 average unit retail, primarily appeals to e.l.f. consumers, I mean, particularly Gen Z and women. What we loved about Naturium, it's got an $18 price point, that mass prestige price point. The products are phenomenal, still that same value orientation because the products they compare to are $100 prestige items if we think about that. It's user base in more millennial, so different than the e.l.f. consumer base, including almost 40% of its users are men as it's in the body category as well. And so if I look at the road map for Naturium ahead, it's really in 4 areas: number one, continue to enhance the team. We were very happy that the entire Naturium team came on board, including the founder, Susan Yara, and has got incredible expertise. But immediately, we can use our capabilities to enhance them in quality and regulatory in their distribution capability. But the second main priority is marketing. They have an incredible engagement model, something that we even liked and we're pretty good at our consumer engagement, how do we ramp that engagement model up. Third, they have an incredible pipeline, the quality of their products, like you said, are unmatched. And then the fourth distribution. So on your distribution channel question, 50% of business right now is at Target. The other half is online. We announced on our last call that we're taking it to Shoppers Drug Mart in Canada. You can expect a disciplined rollout strategy on Naturium as well as leverage just like we did with e.l.f. that original strength with that Target to continue to drive phenomenal growth there. So a very similar playbook with a different consumer set, different brand and what the proposition appeals to.

Dara Mohsenian, Morgan Stanley. So can you help us dimensionalize the long-term market share opportunity on the cosmetics side. You talked about Target being at 20%. Maybe it's overlay from a retailer standpoint, maybe it's a product category standpoint, but how you think about the markets you're potentially looking out 5 or 10 years? And then a much softer question, but you've had incredible success. How do you keep the organization culturally focused on sort of that constructive discontent and not getting arrogant or hubris or complacent just given the success you've had?

Yes. So the short answer on the first question is I don't know how high is up on the market share potential, a little bit of like when we thought 18% was good at Target and then we see kind of a month that comes in well over 20%. Historically, if you look at the U.S. market, the highest somewhat you've gotten was basically that Maybelline 16% share -- 15%, 16% share depending on the customer where they're at. So if I kind of just do the math, we haven't put a final kind of share thing. I'm like, I can tell you, Walmart, Drug Channel, other customers are very keen on trying to replicate what Target did and Target's not standing still. So overall, previously to get to doubling our share, all we have to do is have other people catch up to where Target was. And we get to that 18% share over time. We're now internally thinking like, are we selling ourselves short in what this is -- what's really possible here. And Target actually was one of the best ones to push us there. We're going to do about $440 million of retail sales at Target this fiscal year for us. They approached us and said, how can you be our first $1 billion beauty brand. And so we haven't fully known that other than we have plenty of opportunities short term to go chase. And then culture is the biggest thing. It's a thing that we talked about that I don't think people fully appreciate this One Team, One Dream approach, a high-performance team culture, how we bring people in, how we interview on that, how we train on that, that's going to be one of the key things. I mean if you saw it was interesting, another company today talked about their market cap and how many employees they had. And I sat there and I did my calculator, took my -- it's not -- we can go on valuation wherever, but I was going on [indiscernible] segment, wow, that's pretty good. Then I did our math. And I was like, oh, that's 10x better. I like that a little bit better, right? So we know we've continued to invest in the team, but we've done it in a measured way where we can make sure that we keep those cultural components going. I never want to have a matrix and ever want to get slow and bureaucratic as we go through. And so that's probably the biggest thing that we spend time on as an exec team to ensure that we maintain that unique culture.

I think we'll wrap it up there. Join me again in thanking e.l.f. for both the amazing presentation and their sponsorship of the conference.