E.l.f. Beauty appealing to more Millennial, Gen X consumers despite inflation

E.l.f. Beauty's fourth quarter results topped analyst estimates despite slowing consumer spending. Tarang Amin, E.l.f. Beauty Chairman and CEO, joins Yahoo Finance Live to discuss the beauty brand's results, the state of the beauty sector, pricing, and consumer spending trends.

Video Transcript

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AKIKO FUJITA: Consumers continue to face a challenging economic environment amid rising rates and elevated inflation. Countless retailers have pointed to the choppy consumer environment, yet there seems to be a bright spot in cosmetics. For a closer look into the state of beauty-- the beauty sector, we have E.l.f. Beauty chief executive officer and chairman Tarang Amin.

Good to talk to you today. You know, it was the thing that we heard over and over, especially from some of the big name retailers, who are saying consumers are still buying cosmetics. You are at a competitive price point. What are you seeing as consumers have to face higher prices and have to kind of prioritize?

TARANG AMIN: Well, you know, I think we've been really fortunate. And I'm proud of our team. This is our 17th consecutive quarter of net sales growth. We finished our fiscal year with net sales up 48%, grew over 270 basis points of market share. So our business is really resonating with consumers.

And I think what you're seeing in the macro is I'm quite bullish on color cosmetics and mass beauty. It's one of those small luxuries everyone can afford. And we're particularly well-positioned within that category with our incredible value proposition of bringing the best of beauty and making it accessible, our powerhouse innovation, and our marketing engine. And it's definitely resonating with consumers.

SEANA SMITH: Tarang, Seana here. What are you doing, I guess, more specifically, on that pricing strategy, given the fact that inflation has remained very sticky? How much of that have you or are you planning to pass along to your consumer, given the fact that it hasn't improved at the rate or eased, I should say, that maybe we were initially expecting?

TARANG AMIN: Yeah. So our-- you know, model is different. We took pricing in March of 2022, so over a year ago. And that was in response to a lot of the inflationary pressures people, companies are facing. But since then, we haven't taken any additional pricing. And we do not plan to take additional pricing. We feel that if we can offer an extraordinary value proposition, it resonates with consumers.

A great example is we recently launched our Halo Glow Beauty Wands. These sell for $9. But the only other thing you can find like it is a prestige item at $42. So we're able to offer our consumers an incredible value equation. And it's working. It's driving really strong sales. And that in turn is helping us expand our margins as we get leverage in the non-marketing SG&A portions.

AKIKO FUJITA: To what extent are you seeing trade-downs? I mean, maybe you don't want to spend 60 bucks, 70 bucks on a certain product. E.l.f. offer something that's a lot more cheaper.

TARANG AMIN: Yeah. So I think, you know, more than even trade-down or trade-within, our unique proposition is our ability to expand the entire category. You know, for example, three or four years ago, we introduced our Poreless Putty primer. This product costs $10, which is a little bit higher than some of our other E.l.f. products. But again, the only thing like it in the market is a prestige item at $56.

Now, we've tracked that over time. And what we found is both mass and prestige beauty are actually doing quite well right now. That prestige item continue to grow double digits. But we brought nine times the number of consumers into the franchise. We sell nine times the number of units. So really, our proposition is being able to give millions of consumers access to the best of beauty that they somehow couldn't afford. I mean, not everyone can afford a $56 Poreless Putty primer, but you can afford $10 for the E.l.f. one.

SEANA SMITH: Well, Tarang, to the point, you have historically been very, very popular among the younger consumers-- Gen Z. There's a Piper Sandler survey. And over the last several quarters, you have been named the top makeup brand among the younger consumer. As people do maybe trend down a little bit more, you talk about the fact that you're growing your market share. How much of that is coming from older consumers? And where are you finding that?

TARANG AMIN: Well, as you said, we are the number one brand amongst teens. And we have been for some time, not only by a wide margin color cosmetics, but we crack the top 10 with E.l.f. Skin as well. So our brand really does resonate with teens. But one of the things we've been seeing is we've been picking up more and more millennials and Gen X. And that really talks to the fundamental power of the value proposition, the innovation.

You know, consumers that maybe would not want to find this beauty wand are coming new to our franchise. And we're seeing that we're picking up more than just the teens. And that's actually been a really good thing.

AKIKO FUJITA: What are your top-selling products right now? What does that tell you about what consumers are prioritizing?

TARANG AMIN: Well, you know, a lot of our top-selling products happen to be in the complexion area. So our Power Grip primer, again, is not only the number one primer in mass and prestige, but it's the number one SKU in mass cosmetics. We also have real strength with concealers, our highlighters, our Halo Glow franchise. And so what you're seeing is E.l.f. Beauty is really great for that everyday look that you want to go out with.

But people are also looking at some of these other core categories. We have a great launch with our old face lipstick, a real bold satiny color. And-- and so we're seeing strength pretty much across every one of our segments. We have 16 segments, where we have the number one or two position in the mass color cosmetics category. So we're seeing our brand resonate across multiple segments and multiple consumers.

SEANA SMITH: Tarang, what are you hearing from some of your partners here? We heard from Walmart, from Target, that they're struggling with inventory shrinkage, specifically they're ongoing organized retail crime. Are you seeing that, or are they seeing that with some of the E.l.f. products that they do sell in the store? And I guess, how do you think or what do you think is the best thing to do or the best way here to deal with this challenge?

TARANG AMIN: Yeah. So I would say that's probably more of a macro issue than specific to E.l.f. We haven't seen it in a great magnitude. But I think the best thing we can do with our retail partners is continue to partner with them, bring the innovation that their consumers are looking for, bring the engagement model that I talked about and the value proposition. And E.l.f. is a great value every single day. So we don't rely on high-low merchandising or any of those types of things.

And what we find is it has resonance with every one of our retail customers. We're growing our business strongly at Walmart. We grew our business at Ulta Beauty over 70% last year without any incremental space. And at Target, our longest-standing national retail customer, we're their biggest brand across mass color cosmetics and facial skin care by a pretty wide margin. So I think our value proposition, innovation, and marketing really are resonating despite any of the other macro issues they're facing.

AKIKO FUJITA: Yeah. It's really in the right space right now in terms of the strength that we're seeing. E.l.f. Beauty CEO Tarang Amin, appreciate your time today.

TARANG AMIN: Thank you.