e.l.f. Beauty’s Billion-Dollar Glow-Up: CFO Mandy Fields on rhode, Tariffs & Global Expansion

On this episode of After Earnings, we have Elf the Beauty brand, having a high profile year with the billion dollar acquisition of Road Haley Bieber skincare brand, and a look towards aggressive international expansion. Today I'm delighted to be joined by Maddy Fields's, elf's Chief Financial Officer to discuss the company's growth strategy, the impact of tariffs and what it means to have celebrities in the mix. Mandy, thank you so much for joining us. There's a ton to get through, but wanted to start on something a bit more tactical because we're living in a moment where public companies are getting a lot of focus on their branding. We've seen that recently, whether it's American Eagle or Cracker Barrel, an ELF is really famous for its nuts and bolts approach to building engagement and building an audience in a very entrepreneurial fashion. Talk to us about the marketing strategy and funding it right now.

Well, Ann, first of all, thank you so much for having me. It's a pleasure to be here. Marketing is really at the center of everything that we do. It has helped us to stand out as a brand. When I came in to this company seven years ago, we were only spending about 7% of our net sales behind marketing and digital. And today that range is from 24 to 26% of net sales. So it's certainly an investment area and area that we're continuing to see high ROIs behind. And so really support Corey and the team in what they're doing from a marketing standpoint. And really our goal is to delight and entertain our community, and that's what we set out to do with all of our campaigns and are very pleased with what we're seeing there.

Now, one of the ways in which brands try to get a higher return on their marketing investment, or at least bring down the cost, is to partner with individuals who have got huge followings and huge audiences already. Talk to us a bit about Elf acquiring not just one celebrity brand. We've seen all the headlines recently on Road, but Alicia Keys is someone that you've partnered with as well. Talk to us about how these celebrity focused brands are performing.

I'll tell you that we are very proud of the founders that we have in our portfolio of brands. In fact, we were just at the New York Stock Exchange two weeks ago and had all of our female founders there. We had Alicia Keys there, Haley Bieber was there, Shirley and Dr. Renee from Well, people were there. And it was just really an incredible moment because we have created a platform where these founders feel that they can continue to push forward their vision that they have for their brands. And that is something very special that we're building with Elf. We like to say that we're building a different kind of beauty company, but really a different kind of company period where we embrace these founders, we support their vision, and we're really here to say, how can we help accelerate that growth behind your brands? And in fiscal 25, which ended for us in March of this year, all of our brands in our portfolio grew on a year over year basis. And so we're very proud of what we're building here at Elf, specifically with the founders still very much involved in everything that we do. So we really don't see it as a celebrity play. We see it as these founders being dedicated to these brands as they move forward.

And let's give us an example of that, Mandy, let's dig a little bit into Keys. SoulCare, which is the brand that you partnered with Alicia Keys on. You said it grew, all of your brands did, but in terms of looking at the marketing spend for a brand like that compared to another that doesn't have a famous face presenting it to the outside world, what do those differences in marketing spend look like, if any?

Well, there's really no difference from a marketing spend standpoint because we target that 24 to 26% range at a total elf beauty level. And so how that allocates to different brands might be different, but we're really focused on what are we spending from an elf beauty level, where are we getting those highest returns? And that really dictates where we're spending our marketing dollars.

So where are you getting the highest returns right now, Mandy?

When we look at the brand that is the largest in our portfolio, it's going to be Elf Cosmetics, elf Skin, and so that will continue to drive those high ROIs for us because there's just such a bigger awareness behind those brands versus what we're building with Nirium. And I failed to mention Susan Yara and that female founder cohort, but that brand continues to do very well. Launched in Ulta last year, has done tremendously well in addition to the other brands that we have in our portfolio. So that marketing spin, it really is focused on how best to connect with the community, what's going to resonate the most. In fact, not just in this past month, just did their first awareness building campaign. And so that was really great to see come to life and they're finding their own voice and really going after the opportunity to increase the audience behind that brand as well.

Talk to us about the growth strategy both for Elf as a whole, Mandy, and then also give us one or two stories about a particular brand or a particular category that you are all leaning into perhaps more aggressively than others.

So our growth strategy is really anchored on three things. One is to become the number one brand in color cosmetics. Number two is to continue to penetrate skincare as a new category. And we've done that with Elf Skin. We accelerated that with the acquisition of Nirium two years ago and I think we've even further gone into that direction with the recent acquisition of Road. And so skincare is a very important area and category that we're focused on. And then number three, I would say internationally, roughly 20% of our sales is outside of the US today. You compare that to other competitors in beauty where more than half of their sales are outside of the us and so that illustrates the tremendous opportunity for us to continue to expand globally. And on the category question, I think skincare is a great example of that. Before the acquisition of Natatorium, about 9% of our sales were in skincare.

(06:04)
The acquisition of Natatorium doubled that penetration in skincare and we continue to push forward there. And what we loved about Natatorium is not only did they have the facial skincare side of the house, but they also had body care. And so that's a new category for us that they're seeing tremendous progress in. And then you layer on Top Road, which has Haley's philosophy of one of everything really great in that portfolio. And so you have the skincare, but then you also have a little bit of hybrids with a lip peptide treatment or the glazing milk that people just kind of use as a natural glow up to their skin. And so we're very pleased with what we're seeing on the skincare side as

Well. Bandy, it's so fascinating because when you lay this out, you've talked about different parts of the beauty space where depending on which company you look at, depending on which distribution channel you look at, depending on which geography you look at, the story about the health of the consumer is quite different, right? There's one school of thought that color cosmetics has been quite a difficult place for brands to play. There's another that said skincare still got great opportunity, particularly high performance, but it's perhaps getting a little bit more saturated. When you look at the portfolio brands you have, how much are your customers, at least right now, very distinct consumer bases versus how much crossover are you seeing? Are you seeing any trends that help you think about a way that you can cross pollinate traffic from one to the other?

Yeah. So one, I will say on the category congestion, I mean there's over 1900 brands tracked by Nielsen in color cosmetics and skincare. So there are a lot of brands out there. We believe that we do have a distinct portfolio of brands and distinct from one another, whether that be from a price point perspective, if you think about Elf, elf is going to be at the more value tier price point at around $7 on average you have Natatorium, then that steps it up a little bit more around $18 on average. And then you have Road that takes us into entry level prestige. And so definitely differentiate it from accessibility from price point standpoint, but all accessible in their own right because important to us at Elf. And then I would say from a demographic standpoint, the thing that is really unique about Natatorium is almost 40% of their users are male. And so that is something that is very differentiated from the other brands that we have in our portfolio. And then you have Elf and Road speaking to a younger demographic but in different ways and both have connection with community that is super important. And so I think that they're both stand on their own right. Nirium certainly stands in its own right with that male audience, more millennial Gen X users of that brand. And so very differentiated across the brands that we have.

And just given that differentiation, Mandy, let's go back to the long-term growth strategy that you've touched on, but really dig into it. How is the strategy different for each? Are some of those brands more ripe for international expansion than others? Talk to us about how you assess each of those brands individually or together and figure out where to put the dollars behind them.

Well, we have a strong portfolio of brands and I think all of our brands are ripe for international expansion. When I think about Elf, our community is asking for us in countries that we're not even in yet. When we launched with Gloss in Italy, we took our portfolio as it was here in the us, took that forward. They told us, Hey, people don't wear primer here in Italy. Don't put that on the shelf, don't include that in the assortment. Well, in fact, our Power Grip primer is the number one item in Italy in the DeLoss stores. And so we've got a great recipe for how to go to market and generating that consumer demand before we get into the country has been very important. And I think that as we continue to expand internationally, that's going to be a roadmap for us. Where are consumers already asking for our brand?

(10:14)
Marrying that up with countries that have retailers that have this expansive footprint. Rossman in Germany is a great example of that. They had a huge retail fleet in Germany, but then also have presence in Poland, which will be going to Rossman and Poland as well, which we talked about. And so just leveraging that community demand but also partnering with the right retailers in these countries is going to continue to take us forward. And I see that same opportunity with Nirium. We just talked about them going to launch in Sephora, Australia. Sephora is a great partner to road as well, and so I could certainly see that opening up doors globally for Road Natatorium as well as Elf. We launched in Sephora, Mexico last year seeing great success there and we just talked about launching in the GCC countries in the Middle East with Sephora. And so all of those things continue to open up opportunities for us, but it's really rooted in our community is asking for our brands all across the world and it's just how fast can we get there and expand our presence in those countries.

Let's talk about Sephora in the US just a little bit more, Mandy. So early in September, Sephora is now going to distribute road, which is very exciting. So that evolution from direct to consumer to going into shelves, talk to us about the cost of pursuing that kind of retail strategy. I've been in the industry a little bit. It's not cheap to go on the shelves of Sephora when you're a brand. Talk to us about that.

Well, I'll tell you, road has done an incredible job. Haley, Nick flas, Lauren, Michael Ratner, that team has done an incredible job of not only creating a brand that had tremendous sales growth but also was profitable.

And

So we've talked about wanting to invest behind that brand, whether it be through marketing or as it expands into Sephora, that was also an investment. But even with those investments, we expect that brand to continue to be accretive to our EBITDA margins, which is incredible. And so I would say there was room there to make that investment to launch in Sephora, and we are so pleased with the launch in Sephora launched in all US and Canadian doors on September 4th. It blew everybody's expectations out of the water, very pleased with what we're seeing there.

Expectations were high. Mandy, let's talk a bit more about the terms of the deal. $600 million in cash upfront, $200 million in ELF Shares as part of the consideration, and then another $200 million is an earnout that's held back for those listening and paid out to the team over time subject to hitting certain performance milestones.

That's correct.

Some folks in the market, some analysts said this is a big price. The brands done unbelievably well. You can't dispute the growth and the fact it's been profitable growth, but nevertheless, a billion dollars means there's big expectations on execution. Sephora is one of those execution levers. What are the others for Road?

Well, as mentioned, road had tremendous growth even before launching in Sephora. So over a three year period, they had built that brand over $200 million in sales on their own D two C channel. And we see a lot of brands come through and we see a lot of brands in beauty and we've not seen anyone really reach that level of sales volume through a DTC channel in such a short amount of time. And they did it with just 10 products. So there's variations at the skew level, but just 10 products. So it's really incredibly productive brand that they've created. And so the launch into Sephora, yes, that's one growth lever. And remember Sephora is the world's largest beauty retailer. And so that's a great partner to have as we launched in All doors. And I think it's a testament to the brand that Sephora will usually test you in a handful of stores before rolling out into the broader market. But with Road they said, we're going to go big, we're going to go all US and Canada. At one time we talked about launching in the UK later this year with Sephora as well. And so there's a lot of growth opportunity I think with Sephora before we even start to think about other channels to play in. And so really pleased that we have that partnership and both sides are very much dedicated to seeing the success of this brand.

I'm going to ask you a slightly provocative question, Mandy, and it's not for the sake of being provocative. It is actually stemming from having seen that celebrity founder brands have had mixed outcomes. Some have been phenomenally successful, others have struggled, where the founding partner, where the celebrity has decided that perhaps they don't want to continue on as the face of the brand where they feel that it's perhaps deviated from the vision they laid out at the beginning, even with the best of intentions when they get acquired. How do you feel about what ELF is able to do to mitigate that risk, not just with Road, but you partnered with some other famous people too and perhaps you want to continue to do so in future? What are the litigants that you can put in place so shareholders get comfortable?

Yeah, so really the difference with Elf is that as we bring brands onto our platform, and I mentioned this a little bit earlier, we want to continue to see them grow. This is not a synergy play where we want to bring a brand on and we want to cut a bunch of costs and we want to put them in an Elf machine and just add it to our sales base. We actually want to nurture these brands. Our plan with Road, our strategy with Natatorium was the same. Well people the same. We want to let these brands continue to run. We will help you with investments, we'll help connect you with the right people. From a retailer standpoint, we helped road find field staff because we had those connections that we could bring to the table and anything else that they need, we want to be here to help them accelerate the growth behind the brand.

(16:23)
We don't want to detract from what they're doing. And so it's very much what we call a pool model. We want these founders to come to us when you need help, otherwise we're going to let you run and we're going to be here to support you to continue to drive that growth. So a very different model. I think most companies that take these brands on kind of put 'em in the machine and then you don't have the founder as you move forward. This is Haley's baby on road. She built this from the ground up and she has no intention of saying, see you later. She is in this for the longterm.

Let's switch gears a little bit and get into the numbers. Mandy, let's talk a little bit about tariffs. As you sort of laid out earlier, about 80% of elf's business is in the United States in terms of your top line today, but a large part of your cost structure does rely on China. Talk to us about the current state of play with tariffs. We know the US and China ongoing negotiations. How are you thinking about your supply chain?

Yeah, so about 75% of our supply chain is still concentrated in China.

(17:31)
If you were to rewind the clock maybe five years ago, six years ago, it was about 99% in China. And so we certainly have made progress over the past few years of diversifying our supply chain and it's still very much as part of our tariff mitigation strategy. I think by the end of this fiscal year, we'll be less than that 75% of supply chain concentrated in China. So we continue to make progress on that front, but I'll tell you there's three ways in which we are focused on mitigating tariffs. Number one was through pricing. So we took a price increase on August 1st across all of our items, a dollar across all of our items globally. And so that is now in effect as a mitigation strategy on tariffs. Number two is the supply chain diversification. Like I said, we're making progress, we're working with existing suppliers and also finding new suppliers outside of China to work with to diversify our supply chain. And then number three is really what we're calling business diversification. So as we continue to expand outside of the us, those sales are not subject to tariffs, that volume's not subject to tariff. And so as we continue to diversify from an international standpoint, that also helps that cost mix and mitigates the impact of tariffs.

Can we just talk about that price increase some more? Because when this broke, I was really intrigued to see how this would be received. So just to repeat, it was a $1 price increase. This was across the board whether something was originally priced $11 or $20, that $1 increase was a much bigger percent increase for some of your skews than for others. How have consumers reacted? This happened on August 1st, even a little bit of time, a little bit of data. What's the reaction been?

Yeah, so we originally communicated the price increase to our community back in May, and we got a lot of positive feedback. Thank you so much for being transparent with us, not trying to pull the wool over our eyes, appreciated the transparency. And so that was initial feedback from the community. Like you said, it's still early days on the pricing even though it went into effect August 1st, it takes some time to get fully reflected in the market.

How are you thinking in the seed of CFO of further acquisitions, buybacks, dividends, returns to shareholders? What are you thinking about doing with your ward chest?

Yeah, so we very pleased with our cash position. One, we are going to continue to be focused on investing behind the growth in our brands and our portfolio of brands. One of the big things that we just had, we just went live with SAP on July 1st, and so that was a big investment that we had been using some cash to fund. And so that's super important, making sure you have the right infrastructure in place as you continue to grow globally and that you bring more brands onto the platform, you want to make sure you have that right infrastructure in place. But I would say just continuing to maybe hold onto some of that cash so that you do have dry powder as things like that come up. And just making sure that we're continuing to invest behind the growth of our brands and the infrastructure that we need in place, whether that be from a technology standpoint or from an operation standpoint, making sure that we have what we need as we move forward.

And then coming up in those November earnings. Mandy, there is probably going to be some pressure to provide full year guidance for 2026, something that Elf declined to do in the last quarter. What exactly would you need to be able to provide some kind of guidance to the market? What are the specific actions that you want to see in the macro or elsewhere to get you comfortable enough to give that specificity?

Yeah, so our decision not to provide guidance back in August was solely tied to tariffs. And so there was just still too much uncertainty. The week after we released, there was going to be more detail given on what direction we were going to move in, if there was going to be another delay, if there was going to be higher tariffs. And so now that we have a little bit more visibility into where the year is going to shape up, the decision was made to hold that tariff rate where it is, which is currently about 55% on our products through November. That decision has been made. I think we're going to be in a much better position to provide guidance on our November call, just given that we have more visibility now to the balance of the year and a lot of the inventory that we're buying, we'll be in a better position to make that call.

Mandy, when you are in this seat and you are in a period of uncertainty that is outside else direct control, I'm very curious to know what is the decision making process for you? And it's a judgment call, give no guidance, say if tariffs land between this level and that level. These are the range of outcomes. And the reason I ask this is a bit broader. We've seen companies give no guidance and their share prices have been negatively impacted. We've got others give a range. We've got others say, look, our business absent tariff impact would look like this. Talk to me about how you landed on one versus some of the other communication options.

I'll tell you, Anne, there's a lot of scenario planning going on behind the scenes. I mean, we've looked at a range of outcomes and what we've anchored to is that there's just too wide a range of outcomes. At one point in this year, we were paying 170% on tariffs. We started the year at a 25% level tariff. Now we're kind of in this middle at a 55%. So we did quantify at the 55% level what that means on an annualized basis to just give some perspective. But our guidance philosophy is really rooted in we want to be able to give visibility to both the top and the bottom line. We had a lot of questions, why not just give top line guidance? At least we could have had that, but we want to give a holistic picture and we want to make sure that what we put out there is grounded in some certainty.

(23:29)
And at that time in August, there was just too wide a range of outcomes. And I don't want to anchor at one point and then have to come back and say, oh, now things have changed, so I have to lower it. I don't want to be in that position. And so I think it's better to just be transparent with, Hey, this at a 55% level, this is the impact that you could see on an annualized basis, and we'll be back to you when there's a little bit more certainty on what that means for us for the year.

And then last question for you, Mandy, is about the money and the availability of it as you've just clarified, to invest further into growth, but also into something that is changing I think a little bit in the beauty space, particularly here in the United States, it's become clear that non beauty retailers are reawakening themselves to the ability of beauty to drive traffic to their stores. We just saw the gap. I know you are in the Bay Area right now. The gap local has announced that beauty is going to get back in a bigger way into stores even though they're sort of superpowers apparel. If you were to look ahead to five years from now, which do you think your distribution channels may be in the United States that perhaps look a little bit different from today?

Well, we have evolved over time, right? I think that three, four years ago, Amazon wasn't even really in the conversation from a beauty standpoint. And now they've made tremendous progress in that space. And I think it really comes down to convenience. You want to be where the consumer is shopping, and so the gap must see an opportunity there to take some of that share out of the market. If consumers are shopping in the gap, they want to take some of that beauty wallet as well. And so we'll see how things evolve. But I think from my perspective, it really comes down to convenience consumers, what they want right now, as soon as they can have it. And so whether that be at your traditional retail and drug channel is a convenience play. If you see more apparel players coming into the space, I think it's really going to come down to people just want to get what they want when they want it. And the more points of distribution out there, the more convenient that's going to be for the consumer.

Mandy, thank you so much for joining. Please do come back. I'm Anne Berry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe and share with your friends.