E.L.F CEO on sharing values with Alicia Keys for new beauty line

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with E.L.F. CEO & Chairman Tarang Amin about the company’s latest earnings report, and its partnership with Alicia Keys for a new beauty line.

Video Transcript

ALEXIS CHRISTOFOROUS: Even while we're still on coronavirus lockdown in many parts of the country, it looks like consumers are still willing to spend and spend big on affordable makeup. That's what we're gathering from E.L.F. Beauty Cosmetics latest earnings report. The company also out with some exciting news. It's joining forces with Alicia Keys to launch a new beauty line.

And we have with us E.L.F.'s CEO Tarang Amin here now to discuss. Tarang, always good to see you. Let's just first get to this robust earnings report. What were some of the key drivers for you last quarter?

TARANG AMIN: Well, first of all, thank you for having me. I'm so proud of our team and how they've been able to navigate this crazy environment we're in and deliver a quarter where our sales were up 8%. We grew 500 basis points of gross margin. Our adjusted EBITDA was up, and most importantly, we built about a hundred basis points of market share.

And really the drivers, I'd say, were three things. Number one is we've had digital strength and our level of kind of consumer engagement that were strong going into the crisis. Second is our value equation. You mentioned it, but every day our ability to bring prestige quality at these unbelievable prices and continue to execute on our core strategy. And then I'd say the third thing is we definitely benefited from the government stimulus and the supplemental unemployment benefits. We certainly saw our business accelerate once those dollars hit consumers' wallets. So I think the combination and our team continuing to execute our strategic imperatives really led to an incredible quarter.

BRIAN SOZZI: Tarang, we're just fresh off a jobs report. Created 1.8 million jobs in July. Do you see a recovery in your business, or has the economy stalled?

TARANG AMIN: Well, you know, I'd say things are really quite volatile still. So even in the first-- in our first quarter, April was down almost 30% as the first restrictions went into place. We then saw strong growth in May and June, and really in July we've seen a definite slowdown in our business as COVID cases have surged and as stimulus dollars have started to dry up. So I'd say we're in still for a rocky ride as we go through, so that's one of the things why we're focused so intently on continuing to build market share regardless of where the economy or where our category is.

ALEXIS CHRISTOFOROUS: At what point, though, does this affordable makeup start to eat away at your profit margins so much that it just doesn't-- it doesn't make good business sense, Tarang?

TARANG AMIN: Well, you know, the great thing about our model is we do prestige quality at an extraordinary value every day. So our gross margins for the quarter were 67%, up 500 basis points versus a year ago. So I feel really great about our ability to drive margin really through our margin-accretive innovation, and we're one of the most innovative companies in our space. We launch more new products and these products that you previously could only find in prestige. And our ability to make that accessible I think gives us a really good model to kind of continue to go forward in a way that can delight consumers every day.

BRIAN SOZZI: Tarang, I think you surprised a lot of people by teaming up with Alicia Keys right now. Take us through why did you-- why did you do it that way? One of your competitors, Coty, has spent close to $800 million to take stakes in Kylie Jenner's cosmetics line, Kim Kardashian's cosmetic line. But philosophically, you're taking a different approach.

TARANG AMIN: Yeah, we're taking a very different approach, and I think it goes back to the core values we have as a company of bringing the best of beauty and making it accessible to every eye, lip, and face. And these values are shared by Alicia Keys.

And so what we wanted to do is we wanted to partner with someone of real substance in Alicia Keys, 15-time Grammy Award winner, artist, producer. She even has a "New York Times" best-selling book in her memoir, "More Myself-- A Journey." And so she definitely has an incredible voice, has been a real inspiration and a point of light in this otherwise dark time.

And so our strategy was to really partner with her under the shared values of empowerment, inclusively, a different view of beauty that's much deeper than skin deep, and really be able to partner to create a brand for the long term. So we're not interested in kind of a one big hit and we're done. We've already developed a pipeline that goes for multiple years, multiple categories, with a real focus starting on skincare, which really ties to Alicia's own personal journey in skin care and her views on beauty.

And so we're really excited, and she's been involved in every step of the way. And so I look forward in 2021 when we launch this brand for what it can do for overall beauty.