Bill Chappell: That’s fantastic. And then just sneaking one in e.l.f. skin care, I mean, I know we’re talking about Naturium doing well, but I think you had planned on bringing some of cross pollinating Naturium and e.l.f. skin care in terms of their skill specific abilities and any update there and just kind of how e.l.f. skin care is doing?
Tarang Amin: Yes. So e.l.f. SKIN is doing exceptionally well. We talked during the call in tracked channels, e.l.f. skin care was up 89% versus a category that’s up 9%. So, we continue to see great momentum on e.l.f. SKIN. Recall it was a couple of years ago that we really dedicated that as own brand with its own level of focus. And we’re seeing great things both from an innovation pipeline as well as kind of our awareness build. So, we feel really good. I mean, I think just in the last year, we increased six ranked positions in skincare from number 20 to number 14. And we have aspirations over time to be a top ten brand in skincare. And I feel really good about, both the momentum and the plans we have against it.
Bill Chappell: Great. Thanks.
Operator: Next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.
Dara Mohsenian: Hi, guys.
Tarang Amin: Hi.
Dara Mohsenian: So, obviously, incredibly strong growth in the quarter again. Tarang, maybe can you just give us a brief review on as you think about the long-term market share opportunity, where do you see the opportunity dimensionalizing it out three to five years? How does the recent growth and market share expansion you’ve seen maybe change that view? And just how would you think about it conceptually as we think through where the business could be longer term? Thanks.
Tarang Amin: Thanks, Dara. I feel incredibly well about our ability to continue to gain market share. I feel great about the 305 basis points of market share we grew in this past quarter. And really, if I think about the longer term view, it was just a few years ago that we’re a 4.5 share in color cosmetics. We’re now a 10 share nationally. We’ve often cited Target as, as kind of the beacon. We’re number one at Target. We’ve doubled our market share there over just the last few years and we’re almost a 19% share. So, our sights are set on clear market leadership over time, as I look at the longer track record within color cosmetics. And I feel we’re making great progress there. You can see in our current share momentum, but particularly as you get more space at Walmart in drug, as we continue to expand.
We feel there’s a tremendous opportunity to do what we’ve done in Target. And I think we’re making great progress there. Skincare perhaps is even a bigger opportunity. If I take a look at all the growth we’ve had in skincare, the 89% I just talked about in terms of tracked channels, e.l.f. SKIN growing. We’re still only a 1.4 share in skincare on e.l.f. SKIN compared to a market leader that’s 14 shares. So, even more head headspace on skincare, and now we’ve got two incredible assets to be able to drive that aspiration with both e.l.f. SKIN and Naturium. So, feel really good there. And then the last area upside of kind of market share, market share we often cite is the U.S. Nielsen market share. We’re also making great progress in the international markets, right.
If I look at our rank improvement in Canada and the U.K., just in the last couple years, it’s pretty phenomenal. And, with increased space at both Shoppers, I mean, with Superdrug and Boots, Superdrug in this past year and Boots coming up, I feel even more confident with what we’re doing there with our international team in the U.K. and, a stat we cited in our call was we just entered Douglas, Italy about a quarter ago, and, we’re already their number one brand, not only on the mass side, but also across prestige number one overall. So, it really tells me that this model can replicate, and not only in the U.S., but the amount of growth we have internationally.
Dara Mohsenian: Great. Thanks.
Operator: The next question comes from Peter Grom with UBS. Please go ahead.
Peter Grom: Thanks, operator, and good afternoon, everyone. Hope you’re doing well. So, I wanted to ask a couple of questions on margins. Maybe first, just on the fourth quarter, I apologize if I missed this, but the implied EBITDA margin in 4Q and kind of earnings as well does embed a bit of a step down. Can you maybe just outline the drivers of that, the year-to-date performance and gross margin and marketing guidance would suggest it’s not really either of those buckets. So, just maybe help us understand the puts and takes from a margin and earnings perspective specifically for the fourth quarter? And then just bigger picture, the gross margin performance has been impressive. The guidance implies north of 70% this year. Can you maybe just help us frame the opportunity from here is the room for further expansion is more of the EBITDA lever is really going to come from OpEx. Thanks.
Mandy Fields: Hi, Peter. So, yes, overall, I’m very pleased with the margin progression that we’ve made over this year. Our outlook implies a 200 basis point expansion in EBITDA margin for this year. Our gross margins have also been very strong for this year. Our outlook is implying over 200 basis points, 280 basis points is what’s implied from a guidance standpoint on the gross margin line. So the quarters can ebb and flow, in terms of the spin that you’ll see in each quarter, we are stepping up our marketing spend in Q4. So we are targeting that higher end of the range at 24% for the year. In the first half of the year, we were closer to an 18% level, and so you’ll see marketing ramped up. Even from the 26% that we delivered in Q3, you’ll see that step up even higher Into Q4.
So that will, have an impact overall on our spend, and we continue to invest in our people and infrastructure. You’ll see that in our non-marketing SG&A as well. But in terms of the splits on the quarters, nothing really to call out other than we are going to be stepping up our marketing for Q4.
Operator: The next question comes from Susan Anderson with Canaccord Genuity. Please go ahead.
Susan Anderson: Hi. Good evening. Nice job on the quarter. I guess just really quick to follow-up on that margin question. So I guess on the gross margin front for the fourth quarter, it looks like the full year guide maybe it just implies slightly up for the fourth quarter, so a little bit below what you guys did in the first three quarters. So just curious the driver of that lower gross margin there. And then also on Naturium, it sounds like it’s performing well and in line with your expectations. I’m curious if there’s been I know it’s early, but any learning so far that you’ve taken from the brand that you think is applicable to e.l.f. SKIN. Thanks.
Mandy Fields: So to unpack margin a little bit, for Q3 and Q4. So Q3, we had the benefits we’ve called out, foreign exchange, transportation, cost savings mix. All of those continue on into Q4. The main differences though in Q4, Q4 last year, we started to see the transportation, savings impact that. So If I look at Q3 last year, we were about a 67 margin. Q4 last year, we were 69. So it’s already 200 basis point step up into Q4. Also, I would say on Q4, historically, again, last year was an outlier, but historically, we do see a step down seasonally in our gross margins for Q4 as we’re exiting certain product off the shelf, getting our new product onto shelf, so that also is impacting, but I feel great about the gross margin that we’re out looking, that’s implied in our outlook for Q4, roughly around a 69, which is really strong. And again, looking at ending the year with 280 basis points of margin expansion.
Tarang Amin: And then in terms of learnings from Naturium, I’d say there’s probably two main ones. One is, reinforcement of just how great a team came along with Naturium and how well they fit the e.l.f. culture and integrate in. So far that integration has done extremely well in terms of being able to help them realize the growth potential behind Naturium and also bring learnings into the company. I think the second thing is, we picked up, over 35 people on Naturium, including cofounder Susan Yara. And so I think the learning for us on e.l.f. SKIN is we started this journey a couple of years ago. How do we get even more dedicated resource on e.l.f. SKIN to fully realize the potential there? That fits within our existing people plan in terms of what we hire every year, additional people. And so I think that’s probably the biggest learning back on the e.l.f. SKIN side is getting that level of dedication and expertise on e.l.f. SKIN.
Susan Anderson: Great. Thanks so much for the details. Good luck the rest of the year.
Operator: The next question comes from Anna Lizzul with Bank of America. Please go ahead.
Anna Lizzul: Hi. Good afternoon. Thanks so much for the question. I wanted to ask bigger picture on e.l.f. SKIN and Naturium. How are you thinking about the longer term potential for these two brands given their different price points and ultimately where do you see these brands fitting in with certain retailers and different customer demographics? And then for e.l.f. SKIN specifically, are you beginning to see customers come in through skincare or are sales still primarily from customers who are already users of e.l.f. Cosmetics migrating to e.l.f. SKIN. Thank you.
Tarang Amin: So, the bigger picture Anna for both these brands is we see tremendous growth in both of them. e.l.f. SKIN average unit retail is around $9 primary audience, female. Gen Z has a ton of potential, particularly as more Gen Z and the younger cohorts really migrate to skincare, we see it continue to expand both its presence in retail in terms of its innovation pipeline, we see a great potential there. Naturium, one of the reasons we really like the brand is just how well it complements e.l.f. SKIN. You know, at an $18 average retail, higher price point, that prestige point, it also attracts a different audience, Including over a third of its user base, almost 40% of its user base being men and with the body category in particular.
