00:00I mean, 18 to 20 percent growth. Does that not sort of get you excited?
00:05No, thanks for having me. Great to be here. I mean, listen, I don't disagree.
00:10Road Asset, we're big fans of. A company talked about 40 percent sales growth, a guide for road for this year.
00:19And we actually think that could be even better than that.
00:22The brand just has a lot of momentum and obviously new door opportunity as well.
00:26But what we worry about is the core elf. This is not an inexpensive stock.
00:33And you really do need both organic business and the new asset to be working simultaneously.
00:39And elf just disappointed growing or rather declining this past quarter.
00:45And the company also guided profitability much lower for this year on the road investments.
00:52And the market was not expecting that. I am curious, too.
00:55There was an interesting number when it came to their international business.
00:58I know this is primarily a U.S. company in terms of where it sells its products.
01:03But there was a significant drop off in growth from double digit percentages to low single digit percentages.
01:08Does that concern you as well?
01:10Yeah, no, for sure. I mean, that was part of our downgrade and part of our thesis that, you know,
01:16international has been this double digit compounder for really quite some time now.
01:21This is a great value prop, right?
01:25The elf brand. And there's a lot of white space for this company.
01:29So to see this kind of a drop off from 30 percent growth the previous quarter was, you know, definitely a question mark.
01:37And, you know, as we think about Elf's market share overall of the industry, it's still under 20 percent.
01:45The industry in the United States, including in mass, has improved sequentially.
01:51But yet, you know, we saw this step down with Elf.
01:55And we think that is a concern.
01:56So even with this drop today, 31 percent, it sounds like you're saying that this isn't an inexpensive stock by most measures.
02:04And I wonder how much of this is Elf being sort of a victim of its own success when you think about some of the comps that it was up against.
02:12That's definitely part of it.
02:14The one aspect of this business that we're watching closely right now is innovation.
02:20So the beauty industry responds to innovation very strongly, right?
02:26Like usually no matter at what price, if the innovation is right, the consumer converts.
02:32We question a little bit has, you know, innovation from Elf, you know, potentially gotten a little bit less robust as of late.
02:40And there are other competitors out there in mass that are more on offense.
02:44We think that could be part of it.
02:47But, you know, that certainly is something we're watching closely.
02:50If you do see, you know, some pickup of innovation as we go through the next few quarters, I think that would be, you know, constructive for the business.
02:58Well, to that point, innovation, that's what you want to see from this company.
03:02Is that something that, you know, they could theoretically go out and acquire?
03:05It seems like the sell side is pretty upbeat about what they're seeing with Rotor.
03:09Is this something that you want to see Elf develop in-house?
03:14I think that's something that's the latter.
03:16You know, generally with a kind of a portfolio, you know, type companies, just adding, you know, new assets is not necessarily a road to success.
03:27You know, I think you really want to make sure that the core business, that the organic business in the U.S. and internationally is having some momentum.
03:36And, you know, we're certainly watching the consumer as well.
03:41You know, Chipotle the other week, you know, talked about the younger demographic that is spending less.
03:47This morning, you know, Warby Parkard echoed, you know, some of those comments as well.
03:51So we are wondering, you know, what's happening with that 25-year-old and younger, you know, type of a demo that, you know, Elf certainly is very leveraged to as well.
04:01Well, I'm also curious about that.
04:02And that's a good point.
04:03And you have pretty broad coverage in the consumer space.
04:05But there's always been this idea that during economic downturns that people tend to still hold on to beauty and skin care products, the idea that it ends up becoming that sort of one affordable luxury, if you will, in an otherwise dour economy.
04:20Does that not potentially work to the benefit of Elf and its peers?
04:24I definitely do agree with that.
04:27And, you know, this is an emotional category.
04:29And we do love, you know, Elf's positioning.
04:32This is, you know, a $6.50 on average, you know, price point that they just raised by a dollar, you know, in August.
04:41And they had some pretty good things to say about the elasticity.
04:45So, again, I think when the innovation is right and when the product is right, I think the consumer is ready to convert.
04:53So, you know, specific categories that they've talked about, you know, lip as well as skin care.
04:59This is, you know, at the core, Elf brand as well as eye.
05:03Those three are relatively underpenetrated compared to some of the others.
05:07So that's where we're watching, you know, to see some of the bigger innovation ahead.
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