e.l.f. Beauty, Inc. ($ELF)

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

Thank you.

Thanks for having us.

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

I don't know how that happens in the office, having Internet issues well. Anyway, thanks for having us, Anna. On guidance, so yes, we have set out a guidance for the year at the total company level at 12% to 14%, and on an organic basis is 4% to 5%. And then for Q1, we called out the high single-digit decline primarily driven by cycling a pull-up of shipments last year. If you recall, we launched on our new ERP on July 1, and so some of our retailers did put in orders ahead of that switch over to avoid any kind of out of stocks or anything like that. And so that's really the main reason that you're going to see those high single-digit declines in from a scanner standpoint, we talked about scanner is not where we want to see it right now. Our spring innovation got off to a bit of a slower start than we expected. And we're also cycling. If you recall last year, we launched our melting lip balms early. And so we're still cycling through that until we launch our fall innovation. And so you're going to see scanner kind of bounce around from week to week. Doesn't take away from still seeing that 4% to 5% range as our outlook for the first half of the year as well. You mentioned the Q2 being up mid-teens, there's just going to be some timing. We still feel good about the 4% to 5% overall.

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

Yes, we see this outlook and how we've approached our guidance historically is that we put a baseline case out there at the beginning of the year. I think if you look back over the last 7 years, we pretty much have a track record of ending in a better place than where we started the year. And so as we think about these additional things that we want to pull on like the value and the price discovery that we're doing and launching additional innovation this year. We see those as things that can further strengthen the trends that we're seeing and support that unit volume growth that we want to see. And so certainly do not expect to see further downside driven by those actions. And recall, we also have the potential tariff refund, about $58.5 million is what we paid in IEEPA tariffs last year. We see that as a potential mitigator to any of those headwinds that we called out from a cost standpoint from oil.

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

So, Anna, on pricing, I would say 1 of the key competitive advantages of e.l.f. Beauty is our superior value props, and we take that responsibility of superior value very seriously. As you know, last year, in August, we were forced to take a dollar price increase with the combination of very high tariffs as well as inflationary pressures. It was about a 15% price increase Overall, that pricing was successful from a standpoint of driving higher dollar sales. We saw units kind of in the mid-single-digit decline range. As we've gone into the year, particularly given the state of the consumer, we saw some further unit declines. And so pricing is always an area that we take a look at, particularly in terms of reinforcing our value proposition. So we did a test where we took our skin tints from $18 to $14, and we saw almost a 40% lift even higher in more recent weeks. So that gave us an indication that perhaps there are some other items that we can take a look at to reinforce the superior value that we have. And so we're in the process right now of taking a subset of our range. It's actually a pretty small percentage of our range, where we're also testing, do we see higher unit velocities from the -- from a price gap standpoint, I would say when we took our pricing, we're pretty much the only major player that took pricing during that time. So we were negative in terms of the price increase that we had. In the last 4 or 5 weeks, we have seen AUR in the category come up almost 9%. So we are now seeing some pricing action from a number of our competitors, which should make that gap pretty much more in line. We still have a phenomenal value relative to the rest of mass beauty. I think our average unit retails are closer to $7 versus $10 of everyone else and well over $20 for Prestige. And so we feel good from a value standpoint in terms of what we're going to be able to do, particularly with the discovery that we're doing as we go through. We haven't disclosed what percent of the lineup, I'll just tell you it's a subset. We're not planning to take everything down. We're planning to test just like we do skin tents, where does it make sense as we go through. And then in terms of lapping the price increase last year, a lot of what we're doing in terms of the actions that you've heard us talk about both the price discovery as well as incent as well as incremental unit growth utilizing the $58.5 million of tariff refunds that we're going to be able to get to continue to drive higher unit growth. So as Mandy said, the forecast we put out or the outlook we put out is the floor. We feel there's upside on top of that. And we'll use the same approach we've always used just quarter-by-quarter, update that guidance based on the moment that guidance based on the momentum that we're seeing.

Sure. And as we think about the price bins were the main elite price points were the main issue here in terms of volume growth and that cutting price was the right solution. I guess, looking at your prices, not your prices, not your prices cheaper than other mass peers in this space. And so why is cutting price the right solution currently?

Well, we are always modeling both competitive set as well as our own items and how they're doing. And so we see some items that there may be an opportunity to have even a sharper price on. So it's as simple as that. And we've always done that in a way where we've always looked at, particularly on our innovation mix, what are we going to go out the door with, what really drives the kind of a screaming value? We're most known for is our ability of taking prestige quality or inspiration for prestige or community, putting our prestige and bringing it at a great value. And we feel really good about the innovation that we have coming out in our fall innovation. Some of that has already started to plant online. They will hit retailers in the next month or so as we go through. And many of those have that clear frame of reference to prestige. And so this is what we normally do, which is really making sure we deliver superior value to our community, and that's actually been one of the key drivers.

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

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

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

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

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

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

No, we definitely see it more temporary in nature. We have had a consistently strong track record on innovation. If you take a look each year, we have some of the strongest launches across the entire cosmetics and skin care categories. And even this year, while innovation is lower than our expectations, we already have 2 of the top 10 launches. If I look at our lip oil sticks, they're off to an incredible start. We continue to see great momentum on our global revive or melting lip bumps as we go through. I'd say a couple of the ones that we were hoping for higher results, 1 example being our South Glamp concealer at $5, we thought that would be more viral than it is. And so what reinforcing is when e.l.f. does best when there's a clear frame of reference on a prestige equivalent or inspiration from our community. And if you take a look, that's exactly what the lip oil stick is doing. It's priced at $10. The only other thing like it in the marketplace is a Prestige item at $48. You take a look at the melting lip balms. Again, it's 1 of those where it's $9 relative to Prestige items well over #20, #24, $26. As the innovation coming up in the fall, we've already started planting some of that innovation we're seeing actually incredible virality already in some of the innovation that's coming in the fall. So our dual sided brush, consumers immediately got like, hey, this is $9. The only other thing like it is Prestige item at $36. If you take a look at our blush and bronzer sticks, which we also just put online, they're at $7 versus a Prestige item at $34. And then our quad pallets at $12, the only other thing like in the marketplace is at $64. I think [indiscernible] just did review just yesterday just talking about that. So if you just look at, I think all 3 of those items [indiscernible] interview -- did reviews on, but so did a number of other influencers. So we feel really good, particularly making sure you have those items that have clearer frames of reference.

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

So that's also one of the areas where we're advantaged is being able to look at our community, see what they're most interested in and bring into the market quickly. So we were able to accelerate some innovation into FY '27 that wasn't originally on the pipeline for FY '27, mainly based on the strength that we're seeing from a consumer standpoint. So we're not disclosing what that innovation is just yet, but what I can tell you is they happen to be items that are quite big from a consumer standpoint, like we can see kind of the size of what those look like, and we'll be offering them at an incredible value of what we're known for. And so relative to, I'd say, it doesn't really impact or it doesn't really have anything to do with the pricing discovery that we're doing right now. That is on our core items, certain numbers of our core items where we say, is there an opportunity to drive even greater unit volume through price discovery? Innovation is always based on the relative comparison and making sure we're driving a great value as we go.

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

Yes. I would say there's nothing unusual from a competitive standpoint. There's always a lot of competitive activity in our space. We've talked before, there's 1,800 cosmetics and skin care brands across these categories, but very few have been able to scale. And we happen to have 4 brands out of 14 that have got more than [ $200 billion ] of retail sales. So every one of our brands is strong. Every 1 of them is growing. And so we feel good that way. I think the context I'd give you in terms of this question on maturity or competitive context is we shared in our earnings last time, if you look over the last few years, I think the e.l.f. Cosmetics brand has built over 900 basis points of market share. The next highest brand during that same period is a little bit over 200 basis points of market share. Most of the other brands that we compete in, some have had pretty significant share losses. Even L'Oreal and Maybelline are kind of flattish during that multiyear period. There will be certain periods where you'll see, for example, you have a year where L'Oreal Paris is up and Maybelline is down, another year Maybelline is up, L'Oreal Paris is down. It's the normal noise in the category. We're way more dependent. We're less dependent on competitive activity and more dependent on the core fundamentals that have driven our business, which is value, innovation and disruptive marketing. And we feel good about the plans we've coming in all 3 of those areas. And the last thing I'd tell you from a share standpoint because I think it's often missed is, yes, we have a 13% share nationally. And that, I think, #1 in units, #2 in dollars, a 13% share. But if you look at Target, which is our longest-standing national retail customer, we've got 21% of their category. And the only difference in Target and everyone else is at a 5- or 6-year head start. So as we map the trajectories by customer, we still have massive opportunities across across the board in terms of share growth. A great example being Walmart. We recently cited as the only beauty brand to be nominated for one of their excellence in experience awards across the entire chain. And that was really due to the thought leadership we had on their new beauty vision and their highest vision sets within beauty. They're anchoring their new beauty sets with e.l.f. lead position with more space. We love what we're seeing and Walmart loves what they're seeing in the results from those sets. And those sets have only rolled out and, I don't know, out of their chain of 5,000 doors. I think they only rolled out in subset. So we still have a long way to go is just one example of where we continue to see opportunity by every one of our retail customers. And I would put Target in that list as well. Target long stated that they want e.l.f. to be their first $1 billion beauty brand. We're about halfway there. So we still have a long way to go even within Target relative to their internal objective.

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

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

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

It has far exceeded everyone's expectations. Our own expectations have we had pretty aggressive expectations as part of underwriting that acquisition, but also Sephoras expectations. It is -- was the biggest launch for North America for the U.K. and [indiscernible] in Australia and New Zealand have ever seen by multiples relative to any other large they've ever done. And we've continued to see very strong momentum even after launch. rhode is the #1 brand across the $4. And even in North America, if you look at our position in North America, we're the #1 brand. Often, that's done out of 1 Bay relative to competitors have 2 or 3 different bays. So we have a long way to go even within North America. In addition to that, we did mention that we're very excited about rolling out rhode in 19 countries with [indiscernible] in Europe. And so that launch is coming up in the fall here. And so we feel really great about the growth trajectory that we not only achieved on rhode, but where we have to go. And final context active on rhode is we mentioned in our fiscal year, it's at an annual rate of fiscal '26 was $390 million of net sales, which is pretty phenomenal, but that is in less than 20% of Sephora stores globally. So this rhode has tremendous potential, and we're really excited about the plans we have for it.

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

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

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

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

Well, I think that's one of the fallacies on rhode. Yes, Haley Devers is a celebrity, but she's so much more. She is one of the most thoughtful founders I have ever met, and I meet a lot of founders. She has an incredible incredible instinct, a beautiful aesthetic, real pulse on the community and products. He's absolutely meticulous when it comes to product. It's an incredibly well curated line that ties to their lifestyle the brand can continue to go. So there isn't any other brand like it. It you'd be wrong to try to compare it to a celebrity brand. We've already blown away any expectation of any celebrity brand we've seen to date because it's much more than that. It is a brand that absolutely resonates with the communities that we serve, and you continue to see that strength from a consumer standpoint as we go through. And the example that I give there is continued build we see in rhode kind of month after month even in our launch markets that we've already launched into, which shows the strength. And we still have a long way to go. I think one of the things we talked about on rhode is it is accretive to the margin structure of the company. [indiscernible] ability to invest more in rhode. That's already been incorporated into the guidance that we've given to be able to continue to drive innovation, continue to [indiscernible] on the incredible innovation that we have. And so we feel really good about continuing to drive this brand for the long term.

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

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

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

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

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

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

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

Yes. So what we've said about our international on the core health is that it's really going to be a two-pronged approach as we move forward. One, focusing on driving the productivity that we want to see in those existing markets. So if you recall, our largest markets, Canada, U.K. and Germany, we're going to continue to focus on how do we get better in our existing markets while selectively launching in new markets as we move forward. And again, the team has done a great job of really thinking through how do we do that most distinctly? And so as you think about international growth on the core e.l.f., we haven't given a number on that, but we did say on the call that our our trends are moving in the right direction from both the U.K. and Germany, where we had some pressure last year. We obviously opened DM in Germany that's given additional momentum to that market, which is great to see. And so I think you're going to see us as we go throughout this year, really focused on that two-pronged approach.

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

We see massive potential on Naturium. We mentioned in the call, it is the fastest growing skin care brand amongst the top 50 skin care brands. So it has incredible momentum. We've already more than doubled the business in the 3 years that we've -- since acquisition, and we continue to see big momentum. So right now, you mentioned at Walmart, we just got into the emerging brand section. We think longer term, Naturium belongs both in body and in facial skin care. It's really the presentation that we have both at Target and Ulta Beauty, which continue to have great momentum. And so Walmart still early days. We still have chain to do at Walmart, we're just in a subset of doors right now, and they're very pleased with the results they see. So you'll continue to see additional expansion on Naturium over time, not only in its existing footprint in the U.S., our existing customers in the U.S. with Walmart, Ulta and Target, but new additional distribution as well. So in this past year, we really had a pretty big launch in Boots in the U.K. We've already expanded space in Boots in the U.K. We've always had a strong presence in Space at K. We took Naturium into Sephora in Australia and New Zealand as well, and you'll continue to see other markets. So we like the strategy on Naturium, where you're seeing real momentum strength in our existing retailers and the ability to select to expand into additional markets and retailers.

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

Yes. So we've continued to have great diversification in our supply chain. And frankly, it has less to do with tariffs and more to do with meeting the global demand we see for our brands. So as context, if you back up a few years ago, almost 99% of our production was done in China. Today, over 45% is outside of China, and that percentage will continue to increase. And it's a combination of 2 things. One is we continue to expand the portfolio. So if you look at the main production sites for rhode are in Italy and South Korea, Naturium is mainly in the U.S. And in addition, we continue to take our leading strategic suppliers and set of operations outside of China as well. We recently -- one of our biggest suppliers, we opened up a brand-new facility in Thailand. And the advantage of that is we're able to leverage the expertise of our strategic partners the exact same kind of unit operations and equipment, same advantage that we have in another market. And so I feel really good about the footprint. We've continued to evolve the footprint across the entire brand portfolio. So Naturium's footprint has increased over time, rhode as well and certainly on e.l.f.. And so we haven't stated a percentage in terms of what percent we believe will be outside of China. China will still have an important role. We have a major advantage when it comes to cost, quality and speed, but being able to replicate that advantage in other markets is really the strategy that...

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

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

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

Yes. So rhode -- and let me start there. Rhode, even with the investments that we've made behind the brand, continues to be accretive from an adjusted EBITDA standpoint. And even with the gross margin that we talked about for this year, as they go deeper into retail, you will see gross margin kind of shift around for rhode, but still expect them to be accretive from an EBITDA margin standpoint. If I take a look at the total company, we've outlooked a 20-basis-point increase in adjusted EBITDA for this year. And that is really just getting back to this cadence of incremental progress from an adjusted EBITDA standpoint. I think last year with the tariffs and all the things happening, we were not able to deliver on that. But certainly expect to for this fiscal year. And in terms of those near-term implications, when I think about the rising prices on the oil front, we see that as a transitory thing as the things evolve with Warren are in. We will have the tariff refunds as an opportunity to help offset that within the fiscal year. And so certainly don't that as a headwind that would cause us to kind of take EBITDA a step back from an EBITDA standpoint. Those refunds should help to support some of that inflationary pressure that we're seeing there in addition to helping us on the unit volume growth standpoint, as Tarang spoke to earlier.

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

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

Yes. And what I'd add there is, we've seen some of the commentary on gross margin. It's a little perplexing for us. We feel great about our gross margins. We have a great structure. I think people are getting confused on price discovery. We're talking about a subset of our life the tariff refunds are going to more than offset that from a gross margin standpoint. The way the tariff refunds get applied is the same way tariffs got applied to, which is in the COGS. So you're going to see the refunds really apply to that line. So there's potentially a massive onetime increase in gross margins. But I'd say the overall steady state is great. And so these investments, the higher oil, et cetera, it is nowhere near the magnitude of where the tariff refunds are, and as Mandy said, it gives us then the opportunity, back to one of your original questions, of confidence of driving unit volumes. The confidence we have in driving unit volumes really comes from 3 things. One is the price discovery and the value that we're doing; two, the innovation, both the fall innovation as well as incremental innovation we're bringing in; and the third is using a portion of that tariff refund to really drive -- to double down on the themes that we see working. We've always had a great track record of when we see momentum in a particular area to go feed that momentum and really drive consumer demand behind it. And so all 3 of those things with the tariff refunds, I think we have the opportunity in terms of how that gets funded and where we -- what we're able to drive.

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

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

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

Yes, we continue to see strong ROIs on our marketing spend, which encourages us to keep that marketing spend at those higher levels, the 23% to 25%. We like that range. To your point, at the midpoint, that's exactly what we spent in fiscal '26. And so just want to continue to pull that as a lever because when you think about the things that make up special, it's our value proposition, our innovation and our disruptive marketing engine. And so we want to make sure that we continue to fuel that because that creates that connection to community, creates those cultural moments where we are present, just like we were with Survivor just a week or so ago. And so you're going to continue to see us do really special things from a marketing standpoint. And in terms of leverage on SG&A, what we called out this year is seeing about 20 basis points of leverage on overall SG&A, whether that comes from marketing or whether that comes from other parts of SG&A, we still are pleased with that 20 basis points, making progress from a leverage standpoint.

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

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

Yes. And we've seen the e.l.f. brand is highly elastic. There hasn't been a category we've tested so far that e.l.f. doesn't belong in, but it's going to be that disciplined rollout strategy we have. We still have a massive opportunity in skin care through the fastest-growing skin care brands between El-skin, Naturium and rhode. So we want to make sure that we do that the right way. And then in terms of a little bit of of cash priorities, our first priority is we see tremendous growth ahead. I don't know of any company that has all 5 of its brands growing at a fast pace and have all having a lot of white space. So that's our first priority. Now having said that, we also see a disconnect right now between the stock price and the fundamentals of the business. I don't even know that many consumer companies that are putting out guidance even initial guidance at 12% to 14% net sales growth yet. We obviously see the stock weigh down given the recent trends in the e.l.f. brand. So we did take the opportunity this week to purchase another $50 million of e.l.f. stock. We have an authorization -- original authorization of $0.5 billion. I think we've now gone through about $150 million of that authorization. So we still have more authorization when we see disconnects like we're currently seeing right now. We are -- we will use cash that we have on hand in that regard. And again, it will be a balance. Our first priority is always going to be to invest behind the growth that we see and the potential we see long term behind our brands, but we will also take advantage and we have the authorization to take advantage of what we see disconnects as we're seeing right now.

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

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

Yes. And I'd say, look, our laser focus right now is getting the growth up on e.l.f. Cosmetics e.l.f. SKIN brand is where we're really and in our core categories. We see a ton of potential, including continued market share gains over time, our ability to get to clear #1. That objective has not changed. We're absolutely focused on that. The actions we talked about are really focused against that in terms of value, innovation and marketing. And so that is the primary focus by far. We will have additional categories that we can get expand into, but we'll decide the right cadence and the right way of doing those, but right now, I want to make sure everyone gets that, that's absolutely our focus while continuing to realize, and I think right now, because of where the e.l.f. brand is we're getting to 0 credit, and I think people are somewhat blind just how phenomenal the growth on Naturium and rhode is as we're going through and we get it. So we know what our job is, show the higher unit volumes on e.l.f. and then all of a sudden, I think people can wake up and kind of say like, "Oh, my God, this is a great company." And again, I've got that perspective of the last time the e.l.f. brand went through a slow period was 2018. There are a number of people probably on your call today that wish they got into the stock in 2018. And you've seen kind of that strategy and that focus on value, innovation and marketing has been consistent for 7 consecutive years or 29 consecutive quarters. And so we know what drives this business. It doesn't have anything to do to the noise of the external environment, doesn't have any view people with competition, it has to do with our ability to execute what we know what we're capable of, and that's what we're going to be focused on.

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

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

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

No. I think our clear focus right now is -- I'd say, no, from a transformative acquisition or really large acquisition standpoint. Right now, the focus is really getting share unit growth up on e.l.f., the main brand, realizing potential leave so much white space on the e.l.f. brand. I think people are missing that right now in terms of -- just do the math, 13% share to 21% share is what we're we are focused on from a share objective long term on elf Color. e.l.f. SKIN is still very much in the early days. We went from the #25 position at the #11 position still have a long way to go in terms of the footprint of that brand. Naturium, as I mentioned, is the fastest-growing skin care brand in the top 50 right now, and rhode is just a phenomenal brand that has incredible upside. So that's what we're primarily focused on. Now we have a strong balance sheet. If we saw another Naturium or rhode, we would acquire them, but they're it's a pretty high bar that we have, not only in a pretty high bar, an exceptionally high bar. It has to meet our vision, the financial criteria that we have in terms of strong growth, not only in the top line, but also a strong margin profile. Team and culture and being a fellow disruptor, that leads out the vast majority of potential targets. And so I'd say first focus is realize the organic growth and the strength that we have, execute with excellence what we're capable of, and then we're always looking and seeing different things. And again, if the criteria for us or the bar that would be set is, do we see another Naturium, do we see another rhode, quite frankly, they're very few, if none of those.

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

Thank you for having us.

Thanks for having us.

Thanks So much. Have a great weekend.