e.l.f. Beauty CEO: Our ‘incredible value equation’ drove momentum in Q1

e.l.f. Beauty CEO Tarang Amin joins Yahoo Finance Live to discuss Q1 earnings, the business's cosmetics and skincare segments, and consumer behavior amid inflation.

Video Transcript

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AKIKO FUJITA: Rising prices aren't stopping people from buying makeup. At least, that's the case for elf Beauty after it handily beat Q1 expectations and raised its full year guidance. These results also mark the 14th straight quarter of net sales growth for the makeup company. To discuss all of this, we've got elf Beauty chairman and CEO, Tarang Amin, with me here at the desk.

Tarang, it's good to have you in studio. You had a big quarter here, 26% growth in net sales. You also had your gross margins expand. Talk to me about the momentum you're seeing right now because it feels like you're kind of in that real sweet spot as Americans sort of start to look at tradeoffs on, do I want to spend this much? Is there a discount here? How is that all affecting what you're seeing in the market?

TARANG AMIN: Well, first of all, thank you for having me. I would say our strong quarter is really a continuation of the momentum we've been having, 14th consecutive quarter of net sales growth. And there are really three main drivers. The first is exactly what you said, which is we have this incredible value equation of premium quality products at these extraordinary prices, which really resonate with consumers.

Second, we have the innovation our consumers want, our unique ability to bring things that used to be in prestige or take inspiration from our community and really make them at these accessible price points. And then third, our ability to attract and engage consumers, particularly the younger audience.

AKIKO FUJITA: Yeah, let's talk a bit more about that price point. You said the average price point for elf is a little over 5. That's compared to $9 to some of your competitors. What kind of tradeoffs are you seeing, or are you seeing tradeoffs?

TARANG AMIN: We're not seeing tradeoffs. That's actually the beauty of the elf--

AKIKO FUJITA: Or tradedowns, I should say.

TARANG AMIN: Oh, tradedowns. So we actually see two different things. We see tradedown from prestige. So for example, one of our best sellers right now is our $11 Power Grip Primer. That compares to a prestige item that's $34. So particularly as consumers feel pinched, it's an incredible value for that. But we're also seeing trade into the brand from other mass brands. We picked up 120 basis points a share in this last quarter. So I think it shows the benefits of both those, tradedown from prestige, as well as tradein from other brands.

AKIKO FUJITA: And we've heard a lot from especially retailers who we're talking about, Americans wanting to go out to special events, that they are willing to spend on clothes for weddings and special events out there. What has that meant from the cosmetics perspective? And what does that mean for your skincare line? Because that's one where we saw huge growth during the pandemic. Are people kind of making that switch back?

TARANG AMIN: Well, we saw a real momentum in both color cosmetics and skincare. And I'm bullish on both categories. So I think skincare has been strong now for a number of years, as more consumers care about their skin. And we're really winning in both categories. And I think what you see is definitely see people wanting to go out more, which is, I think, great for the overall color cosmetics category. Within it, we're particularly well positioned, given that value equation and the innovation I talked about.

But skincare is a category where, in the last quarter, in tracked channels, we grew 17% compared to a category that was up 5%. So it also shows our skincare strategy is working, particularly our ability to bring these great products at great prices, as well as, for the first time, actually put some awareness building behind skincare. So we're seeing real momentum actually in both categories for us.

AKIKO FUJITA: We had reporting out today from Reuters that suggests that the administration is now maybe rethinking lifting some of their Chinese tariffs because of what's been playing out with Taiwan. You mentioned that you're actually quite affected because a majority of your products fall under those tariffs at 25%, correct?

TARANG AMIN: That's right.

AKIKO FUJITA: So what does that mean for you right now? I mean, how have you factored that in? And if in fact, they are lifted, which it doesn't look promising right now, how big of a tailwind would you get?

TARANG AMIN: Yeah, so we're carrying about 1,000 basis points of cost pressure in our panel. Now that's reflected in our raised guidance for the year, but about half of that is related to the tariffs, the other half being FX and transportation.

So we've been able to weather that headwind pretty well if you saw in terms of our results, primarily by pricing behind some of the external costs that we've seen, first in tariffs, and then most recently, because of the transportation costs. Certainly, if tariffs got lifted, it would be a major tailwind for us and an improvement on margins. But we're not counting on it right now. And our guidance doesn't take that into consideration.

AKIKO FUJITA: And so that's already factored into the pricing. You mentioned FX, something we've heard from so many companies. What are your expectations on that front in your current quarter?

TARANG AMIN: Yeah, so I would say, we don't give quarterly guidance, but for the year, we are not expecting it to be a huge headwind. We think that really impacted us more last year. I think transportation continues to be elevated. And I think that, again, all of that's been factored into our raised guidance, so I feel pretty good in terms of where we stand.

AKIKO FUJITA: Yeah, a strong quarter despite all of that. Tarang Amin, it's good to have you on today. elf Beauty chairman and CEO.