Good day and welcome to the e.l.f. Beauty’s First Quarter Fiscal 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Melinda Fried. Please go ahead.

Thank you for joining us today to discuss e.l.f. Beauty’s first quarter fiscal 2021 results. I’m Melinda Fried, Head of Corporate Communications for e.l.f. Beauty. As a reminder, this call contains forward-looking statements that are based on management’s expectations including those relating to the category trends and longer-term outlook and 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 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. Please note after the presentation, there is a separate dial-in for the Q&A session, also noted in the press release. With me from management today are Tarang Amin, Chairman and Chief Executive Officer; and Mandy Fields, Senior Vice President and Chief Financial Officer. Let me turn the webcast over to Tarang.

Thank you, Melinda, and good afternoon, everyone. I hope that you’re staying safe and well. Today, we’ll talk about our first quarter fiscal 2021 results, the creation of a new beauty lifestyle brand with Alicia Keys and the overall strategic framework for the company. I’m so proud of the e.l.f. team for delivering strong results in navigating major category headwinds during the COVID-19 pandemic. This is our sixth consecutive quarter of net sales growth with Q1 net sales of $65 million, up 8% versus year ago. We also expanded gross margin to 67%, up nearly 500 basis points versus last year and delivered adjusted EBITDA of $16 million, up 7% versus year ago. Of the top five color cosmetics brands in the U.S., we were the only one to grow share in the quarter with 5.5% of the market, up 100 basis points. We achieved all of this in a volatile category that was down double digits. We continued to excel on our multiple areas of competitive advantage by investing in our brand recharge and executing our five strategic imperatives. Our mission to make the best of beauty accessible to every eye, lip and face is more important than ever. We believe that our fundamental value equation and digital engagement, as well as our world-class team’s ability to move at e.l.f. speed positions as well to continue to gain market share. Today, we’re thrilled to announce our partnering with Alicia Keys to create a beauty lifestyle brand code named project Superwoman. I’ll describe shortly why we believe this brand will be so special and will enhance the overall strategic framework for our company. But first, let me provide a few highlights on the quarter. Our first strategic imperative is to drive brand demand. We have a number of initiatives that…

Thank you, Tarang, and thank you all for joining us this afternoon. Today, I’ll cover our Q1 financial results, provide perspective on what we’re seeing in the current operating environment and discuss how our strategic extensions connect to our long-term economic model. We are quite pleased with our Q1 results. We delivered net sales of $65 million, up 8% from year ago. This growth was mainly driven by e-commerce performance and track channel customers partially offset by Ulta and international store closures that persisted most of the quarter. our growth was further accelerated once we started to see stimulus impact to consumers’ wallets. Our performance in the last 12 weeks, ending 6/13 outpaced the large legacy brands in our space and our outperformance versus the category accelerated with market share up 100 basis points. Gross margin of 67% was up nearly 500 basis points compared to prior year. elfcosmetics.com was the primary driver behind our expanded gross margin. With the consumer shifting online, our site represented more of our sales mix versus a year ago, and total company gross margin benefited from that mix shift. Given the acceleration in sales momentum, we saw in the elfcosmetics.com, we were also able to be less promotional and drive stronger gross margin overall on our site. the benefit of e-commerce margin accretive mix, FX and price increases lifted overall gross margin for the quarter. to the extent, consumers shift back into pre-COVID-19 shopping behavior and away from e-commerce. We expect the benefit we are seeing in gross margin, will roll back by approximately 200 basis points. on an adjusted basis, SG&A as a percentage of sales, was 51% compared to 47% last year, primarily driven by annualizing headcount related to building out our marketing, digital and innovation capabilities, increased operational costs related to…

Thanks, Mandy. This is indeed an exciting time for e.l.f. Beauty. We’re taking market share and believe we’re well positioned to ride out the current storm. We continue to fuel our momentum on e.l.f. Cosmetics, as well as develop additional growth factors behind W3LL People and Project Superwoman. What gives me great confidence in a long-term potential and white space is a set of competitive advantages that we possess. We have the right team with an employee base at 73% female, 60% millennial and 46% diverse representing the consumers that we serve. We’re one of only nine public companies with the board of directors, composed of 67% women. We know our consumers and how to engage them with our number one mass e-commerce site and reach on key digital platforms. We know how to make products people want with a unique ability to launch Holy Grail first-to-mass products. We move at e.l.f. speed with the ability to bring new products to market in as few as 13 weeks. We have world-class operations providing us the best combination of cost, quality, and speed. We know how to go to market and grow through our strong relationships with our national retail partners. We have significant opportunities in both additional space and geographies. We know how to build brands as we move from a single brand company to a multibrand house. While these remain difficult times, we are optimistic in the long-term potential of this company. With that operator, you may open to the call to questions. For those who’d like to ask a question, please do so through a separate dial-in line noted on this screen. Those not asking questions can hear the question-and-answer session through the webcast. We’ll pause a few minutes for those seeking to ask questions to queue up in the dial-in line.

[Operator Instructions] And our first question will come from Erin Murphy with Piper Sandler. Please go ahead.

Great. Thanks. Good afternoon and congrats on a strong first quarter. My first question is really around the progression of trends that you guys saw in the quarter. Maybe, if you could speak to what you thought math from a replenishment perspective. And then it’s also specifically since that was closed for part of the quarter, what did you start to see is that channel or that retailer opened up mid-quarter?

Yes. So, hi Erin. how are you? So, in terms of what we saw within the quarter, it was quite a volatile quarter. So if you recall, when we were in April, our trends were down about 30% in track channels. And then towards the back half of the quarter, we really saw an acceleration and we believe that was primarily driven by a stimulus and the extra unemployment benefit that our consumers were receiving. I would say that from an Ulta standpoint, we saw a strong growth in e-commerce with Ulta. but to your point, their stores were closed most of the quarter, so that we did not have any sales growth there for Q1.

Okay. And then I guess my second question is really around Project Superwoman, given the pricing of this brand, I think Tarang, you talked about entry-level prestige. How are you thinking about the channel opportunity there? Will you be working with new retailers and then you’ve referenced it as kind of a lifestyle brand? I’m curious if you’re thinking about more wellness, if you – in addition to skin and cosmetics and some of the anchors that you do so well. thank you.

Hi, Erin. We’re thrilled about working with Alicia keys on a new lifestyle beauty brand. What we mean by lifestyle beauty brand is this brand is much more than just product alone. Alicia is someone of real substance, who has meaningful things to say on beauty, wellness, inclusivity, many of the core values that we stand for. So, in terms of your question on channel mix, as a digitally native brand ourselves, our first focus will be online. There’s a tremendous amount of content and advice that we can share that we will want to do through digital engagement first. We’ll be revealing more on the brand, including the brand name, line up and retail partnerships probably by the time of our November call.

Great. Thank you, both.

You’re welcome.

Our next question will come from Andrea Teixeira with JPMorgan. Please go ahead.

Hey, good afternoon and first of all, congratulations on the partnership with Alicia. You cannot find it; I would say more escalation ambassador and I’ll send your first quarter results were impressive. So, I wanted to just understand and to have make sure that we – when this and correct me, if I’m making this comment on the margin. obviously, their puts and takes of the gross messaging would be less impact plus that to an impact of this quarter than before. but I was just thinking of your elevated – you’re anniversarying – first of all, in the gross margin, understand you’re anniversarying the price increase over skews to see how much that impacted the last year’s quarters, so that we can take that off. And also how we should be thinking and elevated SG&A, I think when I saw the numbers from my math, I think you’ve kind of really concrete and you’re anniversarying those investments now. So, it’s good to see, like – are you implying margins are going to be flattish, or you’re still going to see an improvement in margins on an EBITDA level. but that being said, last improvement and we saw in the prior quarter. Thank you.

Yes. Okay. Hi, Andrea. I will start with the top. So, your question on gross margin. So, our gross margin was we picked up a benefit this quarter, because of the shift in e-commerce. And so that benefit was probably about 200 basis points that we saw there in the quarter. now, to the extent that consumer shifts back to normal in-store shopping patterns, that gross margin benefit will roll the way on a sequential basis. In terms of pricing, Q2 is when we implemented the pricing last year. So that’s when we’ll start to cycle that impact and pricing overall was somewhere in the range of 200 basis points to 300 basis points of benefit for our gross margin standpoint. And then on SG&A, we are anniversarying some of the investments that we made in our infrastructure behind our marketing and innovation, and digital capabilities. So that is one of the drivers of why you see SG&A higher on the quarter, as well as on a dollar basis, incremental costs are incremental investment in marketing and digital. And then also, as I talked about the e-commerce shift, we got the benefit and gross margin, but there’s also incremental costs that come into the SG&A line. So, those you picked up in SG&A in this quarter and in terms of adjusted EBITDA and margins on the outlook, I mean, we have suspended guidance. So, I can’t really give you a ton of direction on that, in terms of expectations, but I can say that as we think about marketing investment, we only had 11% this quarter that certainly, we want to get up into that 12% to 14% range for the balance of the year.

That’s helpful. Thank you very much.

Our next question will come from Steph Wissink with Jefferies. Please go ahead.

Thank you. Good afternoon, everyone. Also, congratulations from us on a strong quarter.

Thank you.

Tarang, I want to start with you just a question on your comments on space games. You assigned those games to skincare. So, I’m curious if you can talk a little bit about your agenda on skin specifically at Walmart and also with those space games, and I think you’ve also referenced the partnership with Alicia. We’ll include some skincare, but maybe, just talk broadly about your agenda with skincare over the course of the next six and 12 months.

Sure. Hi, Steph. what I’d tell you is, skincare has been a strategic importance to us for the last couple years, and we continue to pour more into skincare, both from an innovation standpoint, as well as what we’ve seen in our momentum and growth trends. So, I talked in our prepared remarks, skincare as a total percentage of our business is 9%, but represents 25% of our elfcosmetics.com business. So, we see quite a bit of room to grow in skincare, particularly as we get larger retail footprints on skincare. the most developed customer we have right now on skincare is target, where we do have more space. So, as we pick up more space than other retailers, including Ulta Beauty and Walmart this fall, it gives us the opportunity to get more of our skincare items. And so we continue to see greater strength in skincare as we’re able to get a bigger footprint there. And our innovation on skincare is definitely resonating the Cannabis Sativa line, our recent CBD – full spectrum CBD line, as well as our Supers line, all delivered important results to the quarter and we have a great pipeline for the future. And then in terms of our new lifestyle beauty brand with Alicia keys. a lot of that was born really through Alicia’s personal journey and struggles in skincare, and what she has to say on overall beauty. And so that line is much more than just product, but certainly, will have a focus initially on skincare. What we’ve also developed a multi-category, multi-year pipeline on that, on that business. And the last thing I’ll tell you on skincare, as we continue to increase our capabilities in this area Dr. Renee Snyder, who’s one of the cofounders of W3LL People, and a board-certified dermatologist, has actually aided our innovation team in the development of some of the products for Alicia keys line, as well as what we’re doing on W3LL People.

Okay. And could I do one follow-up just on your – new to customer file? I think you mentioned 50% of your purchases were from new customers and 65% on elf.com, any unique cohort insights on those new customers that you’re finding new to file.

Yes. We’re really pleased to see the level of new consumers coming to our brand. The initial view that we have is a combination of consumers coming to us from legacy brands on the mass side, as well as some trade down from prestige. So, the specific stats are about 56% of consumers in retail, came to us, our new consumers and over 65% on elfcosmetics.com. We’ll get better profiles of that over time. It’s just one quarters worth of data. So, a lot of that will depend how many of them are we able to retain, but we’re really pleased by how many new consumers are coming into the franchise.

Thank you.

Our next question will come from Linda Weiser with D.A. Davidson. please go ahead.

Yes. Hi. I’m wondering if you could update us on your international business specifically what retailers you have distribution in Europe and the UK, and just talk about some of your aspirations there. And also, is there any long-term plan for penetrating the Chinese beauty market? Thanks.

Hi Linda. So, let me take that question on the international business, I would say for the quarter international, a similar story to what we saw here in the U.S. So, our international online business was very strong with the international retailers if you think about our presence in the UK at Boots and Superdrug were closed, those stores were closed most of the quarter as well. So, we saw growth overall in international, but it was driven by e-commerce. And so I would say international is definitely still an important piece of our business and tremendous white space remains in that market. And in terms of China, I’m going to pass it to Tarang to speak more about that.

Sure. We have high hopes for our business in China as well. Our business in China right now is 100% online, really through some of the key marketplaces like Tmall and JD. What we find in China e-commerce is really important as a brand value standpoint for us is having – being manufactured in country, our ability to go through a different regulatory scheme, where we are guaranteed our cruelty-free status. And so that’s for at least the foreseeable future till regulations change, the only aspirations we’ll have will be on e-commerce. but it happens to be the largest e-commerce market in the world. And I’d say we’re still very much in the early days in terms of our penetration there, but it’s a key area of focus.

Thank you.

Our next question will come from all of Oliver Chen with Cowen. Please go ahead.

congrats on the new brand. regarding Project Superwoman and Alicia keys, what are your thoughts on the long-term opportunity of this brand, relative to e.l.f. and how you’re thinking about the AUR as well as points of distribution more broadly, relative to your presence at e.l.f. I would also – thanks for the details on skincare as well as we model that going forward, are there implications For AUR and/or margin as that looks like a nice opportunity to continue to grow that mix and where might that mix go over time?

Sure. Hi, Oliver. So, we are thrilled to work with Alicia keys and one of the things that attracted us to Alicia was not only her longstanding vision and mission, as she thinks of beauty, much, much broader and greater depth than many others. But the fact that she’s not just a celebrity, she’s much more; she’s a person of real substance. Now, as a 15-time Grammy Award winner artist, producer now, even the best New York times bestselling author with her memoir more of myself. she has real substance. And so a big part of this work with her is really developing a long-term vision for the brand. So, as I mentioned earlier, we’ve already mapped out a multi-year product pipeline, as well as other things that we can do. And so we’re really excited. And then in terms of how that relates to e.l.f., I would say one of the really exciting things about the company right now is we continue to see a great deal of white space on e.l.f., whether it be on space, bringing the new consumers to our brand, our level of innovation, overall value equation. You add to that. W3LL People in a clean – clear pioneer and clean beauty, as well as this lifestyle beauty brand with Alicia keys. We think it creates a much stronger portfolio for us as a company, such that we have greater confidence once things return to normalcy of hitting the higher end of that long-term economic model that Mandy previously shared. And then in terms of mix, you’ve definitely heard right that consumers, who buy skincare on elfcosmetics.com have a $10 higher average order value than consumers only buy cosmetics. skincare while still an extraordinary value from an elf standpoint does have a higher mix from a price standpoint. So, as that happens over time, we would expect the AURs of the company to increase the skincare proportion of the overall business increases.

Okay. Lastly, thank you on innovation and ahead. regarding ingredients and you’re thinking about R&D specific to ingredients and proprietary technology, you can develop internally what’s on your mind or roadmap in terms of differentiating yourself from an ingredient innovation perspective.

Well, we’ve long been focused on ingredients from a standpoint of consumers are increasingly in conscious of the ingredients that are in their products. So, a while ago, we formulated away from parabens, phthalates, other ingredients, consumers did not want to see in their products. What you heard from this last quarter is a real focus on ingredients and wellness, particularly in our skincare products are Cannabis Sativa, full spectrum CBD lines, even our Supers Collection!, that has niacinamide in it, definitely have a very strong ingredient focus. I think bringing W3LL People into the company, it gives us even stronger capability in this area, plant powered, clean beauty brand that has not only one of the highest standards in clean beauty labels, but our ability to really take lessons from that apply it to not only e.l.f., but also what we do on the new lifestyle beauty brand. We create with Alicia keys, really see greater focus on the ingredients that are in our products and I feel great about our capabilities in that regard.

Thank you. Best regards.

Our next question will come from Dara Mohsenian with Morgan Stanley. Please go ahead.

Hey, good afternoon guys.

Good afternoon.

Hi, Dara.

Can you discuss the opportunity for shelf space games at brick-and-mortar in the fall? And as we look out to calendar 2021 in color building on the earlier question on skincare, your share gains were obviously very strong this quarter, and a lot of your larger share competitors saw some pretty substantial decline. So, I’m just wondering if the recent performance drives more of a step change in shelf space opportunity going forward in color over the next year or so. And then secondly, also on the same subject, where their shelf space changes from this spring that were delayed as a result of COVID. Is it realistic to expect changes this fall? Are retailers still pretty apprehensive about making changes to the shelves in this covert environment? Thanks.

So Dara, let’s say, we have great potential when it comes to shelf space games in color. And in fact, the games that we’re going to pick up at Walmart and Ulta, include both color as well as skincare. So that our preferred sets are expanding the space we already have on e.l.f. and housing skincare within our e.l.f. set. That’s the approach that we’ve taken at target and has done very, really well with for us. At Walmart, we’ll follow a similar approach as they expand shelf space in a subset of their doors. Also beauty has decided to put skincare in their skincare sets and the additional space we’ll pick up there in the fall will be in their skincare set. So, we’ll see a combination in both places, both picking up more space on e.l.f. in our color cosmetic sets, where we can put more skincare items in as well as secondary location in the skincare isles and we feel good about that. in terms of our current plans, we’re still on track for the games that we had. All of our spring resets – actually I should back up all of our spring resets were executed a phase 3 of Project Unicorn, which had much greater focus on visual merchandising, particularly on our key hero items like Poreless Putty Primer and Camo Concealer. Those were executed well and we’re definitely seeing the benefits of that phase 3 unicorn execution or we are on track for our space games this fall at both Walmart and Ulta beauty, and are also hopeful for our future space games although we do not have confirmation on any of those. Yes. Those usually come a bit later and we’ll have to see how this, and in this environment, where retailers go. but we certainly have much more room when it comes to space games.

Okay. And as the performance in the last few months, just to push a bit more there has that sort of changed the conversations with retailers? Do you think that’s given you more incremental opportunity than you would have expected six months ago pre-COVID and then just a different question in terms of the new customers you picked up. Can you talk about how you are trying to hold on to that customer going forward and maybe, repeat rates you’ve seen early on from some of those new customers? that would also be helpful. Thanks.

Yes. Well, I would say on the space opportunity, I don’t believe it’s changed the conversation as well as – as much as continued to strengthen our case. This is the sixth consecutive quarter, where we’ve had net sales growth. Our productivity continues to increase with the key retailers we’re at. our innovation pipeline is bigger and better than most competitors that they see and our consumer profile, all of those really argue for more space. And so I think that conversation is well established. It really comes to the retailers’ own strategies and when are they able to make changes to their shelf sets. But the overall case for space I think has been well-made and is well-received by almost all of our retail customers. And then in terms of new customers that we’ve been picking up, I’d say our primary focus there, particularly, online is through our Beauty Squad Loyalty Program. As I mentioned, that loyalty program is now to 2 million members, up over 150% versus last year, and will be an increased area of focus for us as we continue to convert those new customers to loyal e.l.f. consumers and initiatives that we’ve previously talked about, such as our app and our ability to integrate in receipts scanning, where someone can get e.l.f. loyalty points regardless of where they buy their e.l.f. products, will help aid in that journey. So, our focus is converting more of those new consumers over to our loyalty program and really retaining them over time.

Great. Thanks.

Our next question will come from Bill Chappell of Truist Securities. Please go ahead.

Hey, thanks. Good afternoon.

Good afternoon.

Hi, Bill.

Hey just Tarang, going back to the Project Superwoman, I mean, you know, as well as anybody of the pros and cons of kind of a celebrity endorsement and kind of a celebrity brand, and just trying to understand, the thought process, because it’s obviously different marketing, advertising, everything that comes with that type of brand versus where e.l.f. has been, but also maybe it financially does it mean that you’re going to have to take up marketing, advertising beyond the 12% to 14% to really launch a brand new brand and make a big splash? Or do you look to it being like e.l.f. was kind of slowly but surely building out a presence over a number of years?

Yes. So first of all, Bill, I think one of the things that really attracted us to Alicia Keys is, she’s more than a celebrity. She has real substance and someone we can see building a brand with long-term for many years. And our approach is more consistent with e.l.f. than maybe some of the other models that you’re familiar with – of those who do celebrity brands. This is really a lifestyle beauty brand for the long-term. And so the approach that we take, which is digital first very much remains intact. Our approach is, we’re able to then announce which retailers will be entering at a later date. I think you’ll see a great deal of interest in doing things the e.l.f. way and building this brand for the long-term. In terms of the specific levels of marketing support. We haven’t talked about that yet relative to we haven’t given the overall size of the new lifestyle brand in our approach there. What I would tell you is it is not necessarily the big bang approach once where we’re trying to get as much sales and then you move on to the next thing. This is something we definitely want to build and nurture for the long-term. And so I think, I’ve talked previously about, this is not one where we’re just planning to spend tens of millions of dollars and then forget about the brand. This is something we definitely want to build. And the launch plans very much reflect that in terms of leading with content nurturing online and then taking selective retailer relationships to help further amplify and magnify the brand all with and hand in hand with Alicia Keys, who has an incredible and loyal following.

Got it. And then just in terms of follow-up on cadence, I mean, is this a typical, you need to have the brand, the placement, all that done by calendar year in, so you’re ready for shelf planogram resets in the spring, or it will drag out – it will, it will it phase out a little bit longer than that?

Yes. We haven’t we haven’t given the specific timing, but what I would say is, we’ll lead online and then you’ll see retail penetration a bit later. We would probably be in a better position to talk some of those specific plans on our next call.

Got it. And then just one last one there. Do you see having more brands, you said, now ub multi-brand and W3LL PEOPLE often and this is that enough? Or do you see, are there other areas you could go down the road?

We definitely see other places we can go. I mean, the overall strategy or the strategic framework is taking the capabilities we have in team and our infrastructure and applying them to other fast-growing emerging brands. I would say we have our hands full for the time being particularly with the tremendous white space, we have in e.l.f. our plans for W3LL PEOPLE, including the sneak peek we gave on the brand recharge and what we can do on that brand. And then obviously their excitement on the lifestyle beauty brand with Alicia Keys. But we are open to other tuck-in acquisitions, as well as brands we create. We don’t have any immediate plans for that, given our focus on these three brands, but it is something that you could see in the future as part of overall strategic framework and leveraging the team and capabilities that we’ve built.

Perfect. Thanks so much for the color.

Our next question will come from Jon Andersen with William Blair. Please go ahead.

Good afternoon, everybody, and thank you for the questions. Just two quick ones for me. Tarang, you mentioned that phase three of Project Unicorn was largely, I think, complete this spring. Can you talk about, are there additional efforts wrapped in Unicorn that we should expect to see during coming quarters? Or do you kind of view it now as mission accomplished with respect to that effort and refocus on other areas going forward?

Hi, John, I don’t think you’re ever going to hear me stop talking about Project Unicorn as it has multiple phases. And if you really look at the objectives of Project Unicorn, they really were to elevate our presentation at shelf in retail settings and increase our productivity. And I don’t think that work will ever be done. We do like what we’re seeing in each successive phase of the Unicorn. So, the next couple of phases of Unicorn will continue the journey that we had this spring of continuing to be able to elevate our presentation and bring greater visual merchandising to our retailer shelves sets. The first phase three, as I just mentioned, really focused on some of our core hero items, such as poreless putty primer and Camo Concealers, which if you looked at them this year versus last year is so much easier to navigate on the shelves and find the areas that we have real strength. We see additional opportunities continue to elevate that visual merchandising. So in the additional space that we’ll pick up this fall at both Walmart and Ulta Beauty, you’ll continue to see the evolution of Unicorn there. And we’re hoping in future years, particularly next year. So, I look at a calendar year, 2021, and the next version of the step change in terms of what else looks like on shelf. I mean, I think if you, at some point, maybe in one of these webcasts we’ll show pictures of what we look like through the successive phases of Unicorn, and it’s quite clear in terms of the elevation of the brand and how much easier it is for consumers to navigate, which in turn has led to much greater productivity and we still see further room to grow.

Excellent. You mentioned briefly in your prepared comments that the new liquid fill facility had been delayed due to COVID. Do you have an update on when you think that facility will be production ready and are there any capacity constraints that you need to deal with in the near-term, given the delays there?

Yes, so our liquid fill facility in Southern California unfortunately has been a victim of the shutdowns related to COVID-19. So, we’ve not been able to do the engineering and installation work necessary. We’re still under lockdown for that particular facility. So, I do not have an update on the timing of that facility. I would say, it’d be later this year, hopefully. I think we’re all hoping for resolution to COVID-19 and returning to normalcy, but I think that will be subject somewhat to our path on when are we back to normal from that standpoint. In terms of capacity, I’d say, actually one other thing on the liquid fill facility, the objectives of that facility are still very much intact, which is gives us further supply diversification and also significantly reduces lead times, which we’re interested in, particularly as we think of the robustness of our innovation program. So, when we are able to open it up where I think we’ll have – we have high hopes on being able to achieve those objectives. Meanwhile, I am so proud of our team, our operations team, particularly our team in China. We were one of the first beauty companies to be fully operational after COVID restrictions were lifted. I think, we were at full capacity within five weeks. We’ve not seen any meaningful supply disruptions during this volatile time. And our team continues to deliver lean manufacturing, savings, and ideas for the future. And then from a capacity standpoint, we have plenty of capacity to meet our needs. And a lot of that will be really incumbent on our planning as we continue to see a lot of volatility in the business, but we feel great about our overall, the strength of our supply chain and that combination of cost, quality and speed we’re able to deliver. And I think, really being put to the test drive the COVID-19 pandemic and really coming through that so far with flying colors.

Great. I actually, if I could squeeze one more in, so you’ve gone pretty quickly from one brand, e.l.f. prestige like a line at value price points, to now having W3LL PEOPLE, clean beauty brand, EWG VERIFIED, real rich credentials there to now adding a lifestyle – a life style beauty brand. So, going from, I guess, one to kind of three brands increases some of the complexity of managing the business, how you allocate resources to innovation marketing, and then more operational aspects like production planning, inventory management, are there changes that you have need – you have made or need to make internally from an organizational standpoint, a people standpoint in order to effectively steward, these three brands as opposed to the single brand focus you’ve had in the past.

Sure, Jon. I’ll tell you two things there. First and foremost, we’ve out of our 250 employees, I think we’ve had selected almost 240 of them now. And so we tend to pick from blue chip CP consumer and beauty environments. So much of the team comes with multi-brand experience. Everyone on the executive team is, has managed multiple brands at the same time often in categories that involve many more brands. So, I think the capabilities, we have are really good from a ability to manage a portfolio of brands. And then the second thing is you heard Mandy talk about our SGNA levels. And some of that SG&A really went into a vision of building this multi-brand house. So, we have added resources in marketing, digital innovation, other areas of the company that give us greater confidence to be able to manage a portfolio of brands with some mix of people who can manage multiple brands. If I think of a lot of the back-office functions, that it doesn’t matter that you have one brand or three brands that you can spread against as well as dedicated resource by these each of these brands as well. And so I feel good having lived for almost 30 years with a multi-brand environment, our ability to do that, but certainly that’s also one of the reasons why we really want to make sure we execute these three with excellence before moving on to additional brands.

Thanks so much. And congratulations on a strong quarter.

Thank you.

Our next question will come from Rupesh Parikh with Oppenheimer. Please go ahead.

Good afternoon. Thanks for taking my question. So just going back to the commentary, just about some of the volatility around the spikes in infections that you’ve seen more recently, any more color you can provide in terms of the impact, whether you see it across all channels categories, more retail and more e-commerce, or just some thoughts there.

Yes. Hi, Rupesh. So, I would say that with the surgeon COVID cases and the uncertainty around another phase of stimulus, we have started to see a softening in the track channel. I would say, the data that was released just on Tuesday, we were in the 3% range on a, like a weekly basis. So, I think there’s still a lot of volatility to be seen out there until there’s more of a normal environment. We still have COVID and then we still have uncertainty in the broader economy. And so I think we’re going to have to just take it week by week here as we look forward.

Great. And then I’ll sneak in one more question. So, I guess just on the promotional environment, I’m curious what you’re seeing right now. And then as you look at some of your retail customers, do you see the need maybe, to support them more later in the year just given the difficult makeup background?

Yes. So, I’ll start first with our e-commerce. I mentioned on the call that we were actually able to be less promotional on our e-commerce, which gave us an even more of a gross margin benefit, because of all of the natural traffic that we were seeing into the channel. So that was a benefit to us. I would say from a retailer standpoint, we’re not promotional. So, we don’t really play that game. And so we know – we don’t feel any pressure to be any more promotional in that channel.

And a lot of that goes down with this model, yes, which is extraordinary value every day and that’s served as well. And that’s really, our mission is continuing to provide prestige qualities, extraordinary values and not be a high role player or promotionally driven player.

Yes. Okay, great. Thank you.

Thank you.

Our next question will come from Mark Astrachan with Stifel. Please go ahead.

Thanks and good afternoon everyone. I wanted to ask about some of the shelf space gains that you’ve lined up for Ulta and Walmart for the fall, maybe just directional kind of size of incrementality there and related to that, what is general receptivity from retail regarding shelf space gains beyond those two retailers given that Ulta had sustained share gains now for quite some time and obviously underperformance or most of the larger brands where a lot of them just seem to not be able to get out of their own way. So does that create more opportunity for yield in time and, any sort of broader strokes about how to think about that? I think would be helpful.

Yes. So Mark, both Walmart and Ulta Beauty do not want us to give specifics on our ship space gain. So you’ll, have to wait until those get set in the fall to get a better sense of those. And hopefully we can talk in November, we’ve already set. It’s a subset of both retailers store counts and picking up space, and you’ll be able to see that shirt soon enough. I would say on the receptivity of greater space, shelf space gains beyond those customers, we’re having conversations with almost all of our retail customers on increasing space and on e.l.f., I think the most established customer of Target has an average footprint that’s at least twice as big as any other customers. There’s plenty of room for people to increase space on e.l.f. particularly given our trends and what we have from an innovation standpoint. Again, I don’t have visibility on what 2021 looks like yet in that regard and will probably not be able to provide that until a bit later in the year once we have some confirmations.

Okay. That’s helpful. Maybe sort of a related question that starts less related to it will come back related. So it’s just thoughts in general, on makeup category performance remaining weak, obviously you had touched a bit on some of the uncertainty, but, maybe talk about how and under what circumstances that potentially begins to improve, or is it simple as COVID has to go away before beauty in particular improve skincare obviously is performing better. And then, back to the previous question on shelf space then is that generally how retailers are kind of thinking about allocations that would be incremental going forward or are they still opportunistic on a brand level basis where we’re applicable?

Sure. So, I’d say the factor is on the makeup category. I think first and foremost, as you outlined is a return to normalcy post COVID-19. I think that’s going to be one of the biggest drivers. We’ve seen the behavior, even in the volatility we’ve seen in our own data, which is in April our track channel businesses, way down given the restrictions that were in place and the fears on COVID-19 and going to retail settings. So, I do think some resumption of normalcy will be one of the key catalysts of seeing better trends and makeup. I think the other thing is, I’m really hopeful that some of the larger legacy players, as they’re able to return to launching more products, being able to do more within the category can be good for the category overall. So, I have long believed that having some of the larger players also do better from an innovation and consumer engagement standpoint is good for the overall category. We’re confident of our ability to continue to gain share, no matter what the environment is, whether the category is declining or increasing. And so I would say that would be the second main piece. And then, the third, which relates to both of those is, I do – if I look at longer term trends, this is a core category for consumers. And so what you’ll see is a shift within the category on those segments that are speaking most to consumers. So, whether it be the blurring of the lines between skincare and makeup. We’ve seen really good results on the wellness products, whether it be Cannabis Sativa, CBD collection, Supers, a number of those or our core makeup line. One of the reasons why I believe, we’re gaining share is our focus on complexion. Poreless putty primer is the only product you need to have, whether you were wearing makeup or not to look great, and feel great. Concealers have a similar outlook as well as many of our other core products. So, I think you will see, continue to see regardless of where the overall market is, some shifts within the category as well, in terms of those categories or subcategories they are speaking more to consumers.

Got it. That’s helpful. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Tarang Amin for any closing remarks. Please go ahead.

Well, thank you everyone for joining us today. I’m so grateful to my talented teammates for meeting the challenges of this pandemic and building market share. I’m energized by the potential here we have with W3LL PEOPLE. And I look forward to sharing more about our new lifestyle beauty brand with Alicia Keys. I fundamentally believe our future is bright. Of course, we’ll continue to be challenged by the environment around us and copying some big months ahead, but I have confidence in our strategy and our team. We look forward to speaking with many of you again at our annual stockholders meeting on August 27. Thank you, and be well,

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.