Greetings and welcome to the e.l.f. Beauty, Inc. Third Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host Willa McManmon, VP of Investor Relations and Corporate Communications. Ms. McManmon, you may begin.

Good afternoon, everyone. Thank you for joining us today to discuss e.l.f. Beauty's third quarter fiscal 2020 earnings results. As a reminder, this call contains forward-looking statements that are based on management's assumptions, expectations, estimates, and projections. These statements, including those relating to the company's fiscal 2020 outlook and long-term model are subject to known and unknown risks and uncertainties, and therefore, actual results may differ materially. Important factors that may cause actual results to differ from those expressed or implied by such forward-looking statements are detailed in today's press release and the company's SEC filings. In addition, the company's presentation today includes information presented on a non-GAAP basis. We refer you to today's press release for a reconciliation of the differences between the non-GAAP presentation and the most directly comparable GAAP measures. With me from management today are Tarang Amin, Chairman and Chief Executive Officer; and Mandy Fields, Senior Vice President and Chief Financial Officer. Tarang will begin the call.

Thank you, Willa, and good afternoon everyone. We are pleased with our third quarter results with net sales of $81 million and adjusted EBITDA of $21 million. Excluding e.l.f. stores, net sales were up 8% versus a year ago. In the 12 weeks ended, December 28, 2019 our dollar share of the color cosmetics category was 5%, up 40 basis points versus year ago, even with the short-term impact of smaller holiday program. For calendar year 2019 of the top five mass color cosmetics brands in Nielsen, we grew the most market share. Reflecting our strong results, we are again raising guidance. We have driven these results through relentless focus on five strategic imperatives that we've discussed with you over the past year. Let me give you a brief overview of each imperative, how our strategy works together and why I am encouraged about our long-term potential. Our first strategic imperative driving demand in the brand continues to exceed our expectations with success across platforms. Marketing and e-commerce spend for the quarter was approximately 11.5% of revenue versus 7% a year ago. This rate was about 150 basis points below our objectives due to the timing of some of the spend which was pushed into the fourth quarter. We are measuring the success of our investments primarily by looking at top line growth alongside internal metrics on reach conversion engagement, as well as external metrics like Google Search and earned media value, all of which exceeded our expectations. Last quarter, we discussed our #elfingamazing campaign. Based on its success, this month we are launching the second phase of our awareness campaign which will further amplify our e.l.f. mission of making the best of beauty accessible to every eye, lip and face. We previously shared the early results of our eye,…

Thank you for covering the Q3 highlights, Tarang. It was another strong quarter and another quarter that we're able to raise guidance. Let me now discuss the third quarter financials, updated guidance and our longer term model. Excluding e.l.f. stores net sales of $81 million were up 8% from year ago. Our in-line performance remained strong throughout December despite the solid holiday program which impacted track channel data. You may have already seen a bounce back in yesterday's Nielsen read which was partially aided by Unicorn merchandising particularly in Target. Gross margin of 65% was up 500 basis points compared to prior year primarily driven by the price increases we implemented in the second quarter along with other factors we've discussed including margin accretive innovation, cost savings and favorable FX rates. Year-to-date FX has contributed a one-time benefit of roughly 200 basis points to our gross margin. I should also note on tariffs that although the phase 1 deal was signed 70% of our product remains tariffs at the 25% level. A very small portion mainly lashes also remains under the 7.5% tariff. On an adjusted basis, SG&A as a percentage of sales was 44% up from 37% last year primarily driven by increased investment in our marketing and digital initiative and bonus accrual partially offset by the closure of our 22 e.l.f. stores. In the third quarter, marketing and e-commerce spend was 11.5% of net sales compared to 7% in the year ago quarter. During the third quarter, some marketing and e-commerce have been shifted to Q4. Therefore, we expect marketing spend as a percentage of net revenue to be higher next quarter. Given top-line results, we still expect to see marketing and e-commerce spend at 12% to 14% for fiscal 2020. Q3 adjusted EBITDA of $21 million was…

[Operator Instructions] Our first question is from Rupesh Parikh with Oppenheimer & Co. Please proceed with your question.

So, I guess you start out just - sounds like on the call there has been more commentary towards these strategic extensions. So as you look at capital allocation, I just want to get a sense of how you're thinking of M&A versus share buyback. As you look at M&A, is there a preference at all between I guess on the makeup side versus skin care, so just any thoughts there?

Hi Rupesh, it's Mandy. I'll go ahead and take that question. So as we look at strategic extensions, we really look at a couple of things. So, we are looking for either small tuck-in brands or we talked about even potentially creating brands on our own. But really, we're looking for a strong gross profile on the top and bottom line, also looking for something that builds on our capabilities either in adjacent category or at a different price point and also some like leverage or capabilities that we've built over the past 16 years. So operationally and through our distribution network would also be something that we look at, but overall, we're looking for something that's accretive or has a clear path to accretion overtime. I think we've been highly disciplined as we've looked at these overtime, I know Tarang has mentioned that at one point in time we looked at next, but we aren’t going to outbid L'Oreal for that asset and so our heads are really around those smaller tuck-ins at this point.

And then maybe just one follow-up question just on the gross margin line. Obviously, you had strong performance in Q3 and it sounds like the tariffs - was tariff more of an impact in Q4. So if you look at your gross margin performance for FY 2019 is 63% level, I guess right way to think about like I guess a sustainable gross margin level going forward?

Mandy for you.

Yes, I'll speak on fiscal 2020 and what we expect for that. So as Tarang mentioned, we've grown in our margin to over 63% year-to-date instead of 64%. So I would expect the year to end somewhere in that range in the 63% to 64% range. We did see the acceleration of tariffs into Q3 about 100 basis points but with those levers that we discussed, we're able to continue to offset.

And FX was 200 basis points one-time impact, so Rupesh as you think of 65% to 63% is probably the right number

That’s right.

Given that we should have done.

Our next question is from Andrea Teixeira with JPMorgan. Please proceed with your question.

So, I understand your suppliers are loyal and I guess Tarang you disclosed that - I mean that the distance from Wuhan. And but I wanted to understand if you believe these factors are still close or if they’re still operating. And I'm more concerned about the supply chain if the raw materials are causing, any disruption and if you’re embedding the risks that struck out is probably not in the fourth quarter? So your fiscal 2020 is likely safe but into fiscal 2021 and update us on how long these products would come in. And again just to clarify that point, and on the SG&A side and I know it’s something just to, the second point is the percentage it is still quite elevated as a percentage of sales. So I wonder when we should think of that leveraging more as you grow the top line? Thank you.

Hi, Andrea, I'll take the first one and give Mandy the second question. So, in terms of China for FY 2021 I'd tell you it's too early to tell. Our thoughts are obviously with our colleagues and our suppliers who are working very closely with. Yes, I think the best thing is we are extremely vigilant on our health and hygiene protocols. I'm very proud that none of our employees or the immediate families have been infected as we checked with all of our suppliers. They have reported none of their employees have had any issues either, part of that is the distance from Wuhan but I think part of is also the protocols we put in place. In terms of our overall approach with our supply chain in China, it is one of the main advantages we have I would say from supply disruption or continuity standpoint. First of all, every one of our items is dual resource we are not single source and anything. So if there was an issue, we've the ability to move volume around. See the second thing is growing into Chinese New Year every year. We go in with elevated inventory levels really because some of these facilities we shut for a month we have our reset to happen here in the springtime. So yes, we're sitting about six months’ worth of inventory right now and that does not include what our customers are sitting on. So right now certainly for the short-term, I think we are feeling pretty good but obviously this is evolving situation and we’ll continue to monitor it. We have a very good track record in terms of our ability to be able to supply our customers and we work very close with them.

That's helpful.

And then Andrea on the SG&A point. So SG&A this quarter was really driven by two things that we called out, the incremental marketing expense so, this quarter we were at 11.5% versus last year. At this time we were at 7% and then also bonus accrual included in this quarter versus not having that as you recall last year, we did not pay any executive bonuses and so now lapping that with that bonus accrual. In our longer term algorithm, we do have some combination of SG&A and/or COG savings baked into that. And so over time over the next three years as we talked, you should expect some savings there.

Right, and if I - and thank you so much one of the things that you also discussed is like bear in mind with the phasing of the Poreless Putty Primer like and Camo Concealer. Is that a consideration obviously now in the fourth quarter and then I know you've been relaunching it also like variations of it. So we're just wondering is just the massive comp because they have done so well and if you can kind of like tell us like what was impacting embedded in your guide of that of lapping that?

Yes so, the guidance right now the 7% to 8% really reflects kind of what we’ve seen as a trend on a two-year stack basis. So, if you look at the low and high end of the guidance range, picture about 5% on a two-year stack for Q4 on the low end and about 8% on the higher end. So really in line with the trends that we are seeing, just calling out that Poreless Putty Primer we do have to cycle that but we are encouraged by the trends that we are seeing so far.

And our new product program is off to a really good start as I mentioned I think five of our top 10 items right now in elfcosmetics.com. Our items we just introduced in the last month or two so while we have a big comp to overcome with Poreless Putty Primer and Camo Concealer, our Holy Grail products like our new Hydration, Camo Concealer, our Liquid Glitter Eyeshadow and a number of other new products were encouraged by the start on those.

Our next question is from Erinn Murphy, Piper Sandler. Please proceed with your question.

I guess I have a couple of questions maybe Tarang first for you, a little bit bigger picture question. As they think about juts the beauty industry right now it’s obviously figure mass in fact for several years now. I mean as you go forward into 2020, 2021. How do you feel like Target, Walmart and bigger talent or just thinking about allocating space for that category? And it's clear that you guys are gaining share but just overall, I'm just curious on what's being allocated to beauty and how that may shift versus prior seasons or prior years?

Hi, Erinn, what I would tell you is beauty is still incredibly attractive sector for any of our retailers, look obviously Ulta Beauty that’s been the case but same with Target and Walmart. They've allocated more space for Beauty overall. We've seen Beauty, you can have shift between some of the subcategories. So, we talked over the last few years’ mass color cosmetics having poor trends than skin care, for example. But, the overall footprint at least for all the customers that we deal with where beauty is major strategic priority, we don't foresee kind of shrinking of that footprint. In terms of allocation decisions within that footprint it comes to growth rate productivity what's level of innovation you have and what your consumer profile is and all four of those, we scored extremely well. So, long-term I am highly confident of our ability to continue to pick up more space. The reason why we provided a long-term model in two different dimensions is spaces episodic. And so we wanted to be able to give a perspective without major space gain or strategic extensions what level of growth do we see. And then when you layered that on what that looks like. So, I am both encouraged long-term in terms of our ability to get space and then short-term, I'd say often for a retailer they have a number of other decisions besides the fundamental performance of a brand. I think yes one headwind there is a number of them have been focused on exclusive brands and testing new brands as they go through, a lot of those will kind of come and go. I think we are well-positioned regardless of those poor legacy players.

And then maybe just a follow-up on that real thought into next year kind of the long-term range plan at the lower end of that, low to mid-single, do you assume the category stays relatively similar to what we are at today, are there any change improvement in the category?

We made the long-term model inclusive of the current category trend. So, we assumed the down category in there that's why we believe it’s pretty growth without space with our strategic extension in the down category to be able to live with that level of growth.

And then just my second question is really for Mandy if you think about marketing I think you guys have it like 12% to 14% of sales this year and you go into next year I mean, is that the general right level to think or was this kind of a short in the arm kind of reach and a brand momentum and that starts to come down, just curious on how you're thinking about that within the framework of the three-year plan? Thank you.

Yes, so as we think about the 12% to 14%, I think we've said that's the area that we feel comfortable with. Right now, we haven't really given guidance beyond that, but to say that 12% to 14% is where we see it at least for fiscal 2020.

Our next question is from Linda-Bolton Weiser, D.A. Davidson. Please proceed with your question.

Could you elaborate a little bit more on your decision to use fewer international distributors and what your plan would be then for other international markets, do you plan to go in direct markets and can you just talk about the regions or countries that you are thinking about penetrating further? Thanks.

Hi, Linda so our strategy which began of a more than a year ago was to really go directly with our key international accounts where we could similar to our strategy in the U.S. where we have direct headquartered coverage at Target Walmart, Ulta Beauty in our drug channel and other key customers. As any of the company, we go through a flow where you start with a lot of international distributors. You figure out which ones you want to be able to keep. Well, as we made that shift, for example, in the U.K. a few years ago, we just saw much better results of being able to go directly to Superdrug and directly to Boots. In terms of other international markets, we are testing the brand we have been for a while in Germany and other countries within Western Europe. Our big focus within Asia is really from an e-commerce standpoint with China and making the move of actually taking over that business directly from a distributor was an important move for us. And you will continue to see us kind of sequentially go country after country, never will be a big bang but more how we go and really make sure we're executing each country the right way.

And then can I just follow-up on the coronavirus issue, is that your understanding that plants will reopen after the extended holiday period or do you have any further information on that and then I think you said your facilities are 500 miles away, would that be in the Guangdong region or there is like other manufacturing region slightly more north, can you just give us a little bit more specificity on where your facilities are or maybe there are in different locations? Thanks.

Sure, Linda, so our supply network is both deep and very broadly distributed. So, we are in different parts of the country, particularly around the Shanghai area where we have suppliers in various other regions. But I'd tell you in terms of production plans, we are scheduled next week to have be in production and have shipments. We had shipments ready to go that we did right before Chinese New Year and we’re seeing very close. It's a quick dynamic and very involving kind of situation, so very proud of our team and just how well everyone is working together including support from the U.S. So, I hope that answers your question. We haven't disclosed where all of our facilities are other than near Wuhan and we have talked in the past being closer to Shanghai and then other regions.

Our next question is from Steph Wissink, Jefferies. Please proceed with your question.

I am trying the first question it’s for you, just a reminder where are you with your shelf sets at your three biggest account Target, Walmart, Ulta, can you give us just a quick diagnostic update on how much space that each retailer you are - you have currently?

Sure so our most developed customers Target well you’ve been in business so long as on average I think we have about an 11 footprint at Target. Then after that would probably Walmart, in terms of Walmart's footprint is on average I think about 5 feet and Ulta right now would be in some combination of 6 foot sets and 4 foot sets on average about 5 feet as well. So in most retailers we find that we have less than kind of 0.5 the footprint we have at Target which gives us that confidence longer term in terms of the footprint of the brand. I should also mention in the drug channel were predominately I think in around 3 foot sets, so we still have room to grow pretty much in every channel that we’re at including a Target. I talked about kind of the benefit of Unicorn and our new merchandising vehicles with these flex towers has been terrific for us in terms of really highlighting our new products and our key Holy Grail innovations and those flex towers form an additional space there as well, so still quite a bit of room to grow.

And then my question for you on skin care, I know you talked about strategic extensions but what about strategic adjacencies if skin body sun care just reminds us, how big the skin care business is today as a percentage of sales and do you see that still the growth opportunity?

Skin Care yes so Steph, this is Mandy. Skin care, we still see as a big opportunity for us. As we mentioned, skin care was up for us 35% in the quarter and when we think about strategic extensions definitely think about adjacencies as I mentioned and skin care would be one of those that we would definitely consider.

And part of this even in color cosmetics for almost 2016 years, skin care is still only two to three years in given the momentum we see given kind of strength in the pipeline. We see a lot of growth there although it is still quite small in overall range.

Our next question is from Oliver Chen, Cowen and Company. Please proceed with your question.

Regarding Project Unicorn that was a big focus, it’s you've had a lot of great success so what inning are you in with Unicorn and how does that apply with the opportunity for space opportunities, related to that is pricing and elasticity, what are your thoughts on what you’ve been seeing in the marketplace with the unit response relative to price increases, it sounds all very encouraging? Thank you.

Thanks, Oliver. I'll take the first question on Unicorn. I’ll ask Mandy to take the one on pricing. Unicorn has been a great success for us in terms of really elevating our position in each of our national retailers on shelf and with merchandising. We are currently entering the third phase of Unicorn which is really focused on better visual merchandising, particularly bringing consumers to our key Holy Grail innovation being able to navigate the shelves better for that. Shelves are currently being set; we'll have a better read of those really over the next four to six weeks. So, one of the reasons why last year we changed our fiscal year to be able to get that read and then in terms of where Unicorn goes from here in, I think you're going to continue to hear us talk about Unicorn phase as we believe there is much more we can do from a visual merchandising standpoint and as that visual merchandising as well as the other improvements we’ve made help us increase productivity. We believe that makes for very good case for space.

Yes, but Oliver on the pricing side, we continue to be pleased with what we see there, I think last quarter we talked about having a 200 basis point impact from pricing and we feel that's continuing to hold so what we saw in Q2 continues to hold true and continues to give us some benefit from having that elevated pricing.

And TikTok?

Yes, go ahead Oliver.

The other question and would love your thoughts on units and then dynamic but you’ve done a remarkable job with TikTok congratulations. How do you see that file platform involving and as we digest evolution operates platform like how much marketing as a percentage of sales would be allocated to emerging platforms like TikTok versus some of the other expenditures?

Yes, so let me finish up on the electricity piece on the unit side. So we do continue to see units down on those items that we priced but better than we what initially modeled so that also gives us some comfort. And then on TikTok I mean it's been an incredible campaign. I'd say it's part of our overall brand recharge, and I think one of the great things about our brand recharge is getting back to our roots in terms of constantly kind of experimenting and really finding ways of engaging with our core consumer. And so TikTok in particular really going the strength that TikTok has amongst GENZ/ We’re definitely seeing, I mean our campaign with 4.4 billion viewers over 3 million user generated videos we see much more we can do not only on TikTok but other emerging platforms as well, and in fact it's not only what we do but what our community does. In the last couple of weeks why I think I'm really encouraged by is there are two viral videos that were posted. We had nothing to do with them one was for bite sized shadows one of our new items soon as that video went on, we saw almost five 5X increase of sales of bite sized shadows in our elfcosmetics.com over the last couple of weeks. Similarly, we saw another viral video go up on our lip exfoliators, this is a product we've had for quite some time one of our core products out there and again I think we saw that one major retailer almost a 6x increase in terms of our lip exfoliator sales, so not only are these platforms great ways to engage our consumers particularly Gen Zs and millennials but we see that translation with the from a business standpoint and you’re going to continue to see experiment and kind of place in the ground.

And lastly the aspect of creating brands. The e.l.f. brand seems pretty irreversible so what are your inclinations in terms of opportunities as you think about either pricing or line extension why would creating another brand be an opportunity.

We certainly believe the biggest potential we have is continue to grow e.l.f. We have tremendous potential in e.l.f. and great belief in that as you say not only continue to get more consumers in the franchise, broaden our footprint, continue to bring out amazing these innovations that's almost 100% of our focus. Having said that most of us also come with multi brand experience where we've seen the benefit of being able to take the investments we made in team and our capabilities and leverage that across other brands whether it be in a higher priced one and given the quality of our products to be applied to different price point or a different adjacency or space we can see the benefit potentially of putting new brand through as part of one of the examples of strategic potential.

Our next question is from Jon Andersen, William Blair. Please proceed with your question

A question, maybe for Tarang on space shelf space in 2020 I think it was mentioned that there were some wins that you've already booked I believe in grocery and perhaps boots in the U.K. Number one, did I hear that accurately and number two are there some other concrete shelf space opportunities with maybe the big three national retail accounts that where decisions could be made during 2020 as well.

Sure John. So you heard that right we did pick up and confirm additional space in grocery as well as boots where we are going to be doubling our footprint over the next 12 months. We have opportunities everywhere there isn't one place we are at our - don't believe we have opportunities and so I think our biggest opportunity remains more space at Wal-Mart this could really under space there, our largest customer and we still have a long way to go there. But seamless we are relatively recent in our experience with Alta they’ve already in this past year started taking space up from 4 foot to 6 foot sets and then finally even target an inch earlier and drug as well. So those decisions we would expect to come later in 2020 and so we are ready for our 2020-2021 guidance it will be in a better position to talk about what are we seeing and where they’ll be.

If those decisions were made automating 2020 what's kinds of the way to think about timing for shelf implementation?

Yes, the timing for shelf implementation really is two ways to think about it. One is the spring sets which are done and we’ve talked about kind of the level of space we have right now which is really just grocery and boots. For additional space, it varies by retailer but if there was going to be space it'd be in the fall of this year as we went through, and again a lot of depends on each retailer strategies in terms of when they are making their final space decisions.

I had a question on pricing just to circle back around and after a minute is all of the pricing that you plan to implement is that now in market on shelf and the volume response that you have seen it sounds like better than expected, but still volume response how long does it typically take in your experience for consumers to kind of absorb that in increase and you get back ability to kind of inflect volumes positively.

Yes, so just to break your question down, yes pricing is implemented across all retailers and elfcosmetics.com. And as we spoke about that started in Q2, so fully reflected in channel data you can see the response and elevated AURs in all of that data. In terms of when you expect units to come back around and I think that you as I said units are better than we modeled but still negative. But you probably need some time to cycle through that price increase before you see the unit inflection again.

Have other mass color cosmetic brands had to make similar price increases or are you in a different situation given the nature of your supply chain?

Yes, so we lead the value segment pretty much every value player took follow our lead into pricing the way the nature worked of which enterprise was often different. Sometime many of them peanut buttered kind of can't approach certain percentage across all of their skills. We tend to target SKUs where we felt we had a much better value proposition or where we felt to competitor might have to take pricing and I think that's one of the reasons why we are seeing better execution that we modeled, but the good news is number of our competitors have taken pricing.

Just one quick one. On the liquid fill facility in California it sounds like you're close to starting production there, how much capacity how quickly will you be able to bring on that capacity, what are you looking for I guess out of this facility in terms of meeting overall demand? Thanks.

Yes. So we have not disclosed what level of capacity we have other than that facility as quite a bit of capacity. I would say in any of our startups there is a certain curve of which we start-up so over the next six weeks we would fully expect to start up that facility. It needs sometime before it accounted for a big portion of our volumes so we’ve continued to see a pretty small. China will remain probably the main source of our volume but it has potential. We sculpted out well before tariffs really from a standpoint if we are going to automate certain unit operations it be best to do that closer to our distribution center and so that's what we are have a lot of lot further to go so hear us talk about that facility for quite some time. And the other thing I would mention is we’re seeing really good results with our lean initiatives in China lean techniques that we have been applying there with the various suppliers a number of them just came back from our annual supplier Summit and heard some great cases of the continued efficiency gains and savings that we can generate there.

Our next question is from Bill Chappell, SunTrust Robinson Humphrey. Please proceed with your question.

Tarang in your longer term guidance the comment was I guess a lot of mid-single digit growth that when you get shelf space gains potential for mid to high, and I only ask about that because as we all remember two years ago when you got meaningful shelf space at both Target and Walmart sales started to actually decelerate as it seemed that the company kind of wasn't quite ready for that much more space and it took longer to kind of get used to and grow into that. So is the - and looking forward should we expect continuous kind of the lag as you add these spinners at Walmart or I mean at Target or get shelf space at Boots or other places. Or do you feel like you've kind of recracked the code and can grow into that - space a lot faster?

Yes thanks Bill. What I would say is one we're further along as a company in terms of our ability to kind of optimize a space even in bigger footprints as we see now with Target and Walmart, but you are correct that even when we get space it does take a while before we start to improve the productivity of that space. And so our long-term model contemplates really both scenarios, without the absence of major space, the strategic extensions low to mid digits in a down category. And then with major space as well as strategic extensions. And I think it's really the combination of the two that gives us confidence in that mid to high single-digits from a growth standpoint. And it's a CAGR over three years, so you can see some lumpiness in that CAGR, but overall, we feel much more comfortable in terms of that range given those circumstances.

And then just another term that I used to hear a lot more than it didn't nor I'm ever hearing on this call was sweet in the mix. So is that still okay now are there still opportunities there on a gross margin or with materials and pricing and everything going on right now there is - it's kind of out on the back burner.

No, sweet in the mix is always to be part of this company, it's how we got from 42% gross margins to over 63% gross margins and as a reminder for those who don't know what sweet in the mix is, it's a combination of a margin accretive innovation, cost savings and our ability to really drive kind of our margins up. I would say the balance on sweet in the mix we believe there is still many opportunities. I mentioned a couple of them both in terms of our liquid fill facility in Southern California as well as a lean manufacturing improvements we're making in China. We believe there is opportunity to improve gross margin further. However, we also want to be careful to John's earlier question on unit velocities and unit volumes that we don't get too greedy from a gross margin standpoint where we lose the extraordinary value that consumers know and believe in us for. So we very well could take some of the progression that we'd make on a cost basis either to take more to the bottom line or to continue to reinforce our high quality and extraordinary value. So we're, as Mandy said earlier, we're stratified with kind of where our margins are right now. We don't have a concerted effort to say we want to get to some really high gross margin level for the sake of it. I think we took our 65% this quarter and there is a one-time for FX kind of gets you to margin level we're pretty comfortable with.

Our next question is from Wendy Nicholson, Citi. Please proceed with your question.

Most of my questions have been answered, but I just had one with regard to sort of online sales and I know Ulta, elfcosmetics.com has been a strong channel for you in the past, can you remind us how much that website represents as a percentage of your sales, and specifically on Amazon. It was interesting because Cody called out Amazon as a particular area of strength in their current quarter. And I'm wondering if that's something across Beauty in general and what trends you're seeing on Amazon? Thanks.

Yes, so on the piece of the pie how much is it Wendy, we haven’t really disclosed that, we will consider that when we talk about our K. I think the last thing we disclosed was the combination of elfcosmetics.com and our stores so more to come on that when we issue our K. And then on Amazon, I'll let Tarang talk about that.

Yes so, I'd say our overall digital business has been an area strength for us throughout the year and that's across customers in both elfcosmetic.com as well as the retailer.com. So, most recently we've seen some good trends at Amazon, but we have also seen very strong trends at ulta.com, target.com and walmart.com. For us, we believe all of them are benefiting from the double down on digital initiatives that I talked about earlier and what we are able to do there. Now for the third quarter I would say we had a really strong growth at the retailer.com. Elfcosmetics.com was not as strong in the third quarter as it has been so far this year mainly because we did not repeat a 60% off promotion, we did a year ago. We feel much more confident in terms of our ability to grow our elfcosmetics.com and other retailer.com business through the efforts I talked about in terms of data and personalization. And we feel really great about where those efforts are, and what those efforts are yielding us.

So but that’s still - the elfcosmetics.com is still a priority kind of over the long-term, it's not like you’ve changed your strategy?

No.

Big picture to walk away from direct-to-consumer?

No I mean we’re very digitally native brand, I mean the only thing.

Yes.

We had was a cosmetics.com when we started, so it’s always going to be our top focus and in fact our second strategic imperative of double down and digital. All the initiatives I talked about benefit elfcosmetics.com, as to kind of our whole focus on our Beauty Squad program and everything we can do there. So no, it's absolutely the engine that drives everything else, it’s a major part of our consumer engagement as well.

Our next question is from Mark Astrachan, Stifel. Please proceed with your question.

I guess I wanted to start with the long-term model and thinking about the growth three extension, thinking about Boots, since you see with the quarter or so to go to next year. Would you consider those major shelf space gains? I mean, are we looking towards high end next year I guess you don’t have to get into guidance. But I guess we’re just, I’m curious kind of how you would think about those two things as major minor and then more holistically on it. So, you're talking about fiscal year growth, you talked about shelf reset margin coming in the fall. So I guess from a dynamic standpoint how do we think about that is it more of a calendar and kind of when the fall reset happens to - is it next year in terms of growth as opposed to flowing through on each fiscal year. So maybe some commentary there could be helpful?

Mark its Mandy, so on the long-term model you’re right we are not giving specific guidance on fiscal 2021 at this time, that will come in May, but I think the differentiator between major space gains and minor. When we say major, we are really talking about the top three retailers that we would consider from a major space, like we’re talking - major incremental space. So that's how I would differentiate those. And then in terms of shelf resets and the timing and when to think about that from a growth standpoint again Tarang talked about fall as being the reset. And then it could also be spring of calendar 2021 as well. And so those really, it just depends on when we get that space, when the reset happens and then how quickly we can optimize that space is when you start to see the growth associated with those.

And part of that is some other retailers themselves are evolving in terms of how they are handling space and historically if you recall Walmart did not have set time for their space decision. They kind of took it as they did modules of stores and when they touched the store, we picked up more space. Target historical is more in the spring and then Ulta you saw some combination the big one in the spring and then depending on what they end up doing with department. And so that's why it's no longer, we used to really anchor people on the spring resets which are seeing more of kind of dynamic in terms of how they are handling space and how they are handling segments of their stores on the overall space. But on the long-term model just a little bit more perspective there. Part of reason why we wanted to provide the long-term model is that our investors have been asking us for it. Of putting the context of our growth our strong growth the year that we didn't grow and now we're growing again, how should we think about it? So we try to frame it in a way that you could see without space or major space or strategic extensions what it would be and then with that what it would be. In terms of grocery and boots I wouldn't I would not consider them major space extensions.

And just lastly the 12% to 14% as a percent of sales from marketing spend. How do we think about kind of puts and takes as to whether that's the right level or not or I guess how do you think about it as whether to right level or not like why would it go higher, why would it stay the same, why would it potentially go lower?

Yes, so for the 12% to 14% we've talked about net sales growth really being that major net of debt we're looking at in terms of the effectiveness of our marketing. And so, with the 12% to 14% we continue to see that level of success. And so, that's where we've put it for now, now we've gotten the question before, how do we know that's the right level, it's just a level that we feel comfortable with given where we are at.

And some of the other internal metrics we look at both in terms of reach conversion as well as engagement, and then externally on Google's search and earn media value. We're always looking at the effectiveness, of what the ROI of that spend is. We’re comfortable particularly given the delta between that 12% to 14% to where we were, so right now we're very comfortable with that level and again we give guidance for FY 2021 we can update you.

We have reached the end of the question and answer session and I will now turn the call back over to Tarang Amin for closing remarks.

Thank you everyone for joining us. We look forward to speaking with you in May when we'll discuss our full fiscal 2020 results as well as our fiscal 2021 outlook. Thanks and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.