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Thank you for joining us today to discuss e.l.f. Beauty's Second Quarter Fiscal '26 results. I'm KC Katten, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer; and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release and reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Tarang.

Thank you, KC, and good afternoon, everyone. Today, we will discuss our second quarter results and our outlook for fiscal 2026. I'm proud of our incredible e.l.f. Beauty team for another quarter of consistent category-leading growth. In Q2, we grew net sales 14% and delivered $66 million in adjusted EBITDA. Q2 marked our 27th consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of high-growth companies. We are 1 of only 6 public companies out of 546 that has grown for 27 straight quarters and average at least 20% sales growth per quarter. Beauty continues to be a resilient category. In Q2, the U.S. mass cosmetics and skin care categories grew approximately 2% year-over-year, in line with the low single-digit growth we've seen in the category over the last 10 years. On a consumption basis, our namesake e.l.f. brand grew 7% this quarter, 3x the category and grew our market share by 140 basis points. We delivered triple-digit share gains across eye, lip and face. Consumers continue to choose e.l.f. Q2 marked our 27th consecutive quarter of market share gains, making e.l.f. the only brand out of nearly 1,000 cosmetics brands tracked by Nielsen to gain share for 27 consecutive quarters. In August, we closed on the acquisition of Rhode, the high-growth beauty brand founded by Hailey Bieber and executed a record-breaking launch in Sephora North America. The acquisition contributed $52 million or approximately 17 percentage points to our net sales in Q2. On an organic basis, excluding Rhode, our net sales were down approximately 3% this quarter. Shipments were below consumption, primarily driven by our decision to temporarily stop shipments to retailers who are slower to execute our price increase that took effect on August 1. We're pleased to report this is now resolved and normal shipments have resumed. Looking at fiscal '26, we're pleased to provide full year guidance, which calls for net sales growth of 18% to 20% year-over-year. This is on top of the 28% net sales growth we delivered in fiscal '25 and projects another year of best-in-class growth among consumer companies. Within that, we expect organic net sales, excluding Rhode to be up approximately 3% to 4%. We believe our consumption trends and market share gains are the best indicator of the underlying health of our business and are pleased by our ongoing strength we've seen in fiscal '26 to date. We expect our shipments to be below consumption in fiscal '26, particularly as we lap significant distribution gains in Dollar General and Target that occurred in the second half of fiscal '25. Over a longer period of time, shipments tend to even out with consumption. We remain confident in our strategy to grow market share and capitalize on the white space ahead of us. We believe the addition of Rhode enhances our long-term growth. In fiscal '26, we expect Rhode to contribute about $200 million in net sales to our results. When considering the $98 million of net sales Rhode achieved in the first half of the year prior to the acquisition close, our outlook assumes Rhode will generate approximately $300 million in net sales on an annualized basis for the 12 months ending March 31, 2026, growing approximately 40% year-over-year. The strength of our brands is evident when viewed in the context of the overall beauty market. While beauty has comparatively low barriers to entry, very few brands have been able to scale. Of the over 1,900 cosmetics and skin care brands tracked by Nielsen, only 26 has surpassed $100 million in annual retail sales. With our acquisition of Naturium 2 years ago and the acquisition of Rhode in August, we now have 4 brands that surpass this threshold. Our brands are unified by our vision to be a different kind of company by building brands that disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. Let me take a moment to discuss our brands and key milestones we achieved in Q2. First, turning to e.l.f. Cosmetics and e.l.f. SKIN. The combination of our value proposition, powerhouse innovation and disruptive marketing engine continue to fuel our market share gains, deepen existing community connections and expand our audience segments. In Piper Sandler's semiannual, Taking Stock With Teens survey, e.l.f. Cosmetics ranked the #1 favorite team makeup brand for a record 8 consecutive surveys. It's the first time in the 25-year history of this survey that any cosmetics brand has achieved this level of sustained leadership. Notably, our 36% mind share is now 4.5x the #2 brand. E.l.f. SKIN also reached a new high, increasing its ranking to the #7 favorite teen skin care brand, up from #8 last year. We continue to grow our audience beyond Gen

Our value proposition continues to resonate with our consumers. Our $1 global portfolio wide price increase went into effect on August 1 to help mitigate some of the increased costs we're seeing from higher tariffs. Even after this increase, 75% of our portfolio sits at a phenomenal value of $10 or less. For context, the average price for e.l.f. Cosmetics is $7.50 today as compared to approximately $9.50 for legacy mass cosmetics brands and nearly $30 for prestige brands. While still relatively early since our price increase went into effect, we're pleased that our consumption continues to outperform category trends. The strength of our productivity and category-leading results continue to earn e.l.f. additional space with our global retailers. In Target, our longest-standing national retailer, we increased our footprint earlier this year to 20 linear feet, up from 13 feet previously. In Walmart, we increased our space last year to 12 feet from 8 feet previously. We're pleased to report that in spring 2026, we'll be increasing our space with e.l.f. Beauty beyond the 12 feet of space we have today. Looking outside the U.S., we're excited for the expansion we have planned this fall. E.l.f. will be launching with Rossmann in Poland and with Sephora in the 6 countries in the Gulf Cooperation Council, our second launch with Sephora following our success in Mexico. We're also pleased to announce we'll be expanding our reach in Germany in spring 2026, launching e.l.f. with DM, building upon the successful launch we had with Rossmann last year. Next, turning to Rhode, the breakthrough beauty brand founded by Hailey Rhode Bieber. I've been in the consumer space 34 years and continue to be blown away by what Hailey and her team are building. In just under 3 years since its founding, Rhode has seen exceptional growth, achieving $212 million of net sales, DTC only with just 10 products. In September, we launched Rhode with Sephora, the world's leading global beauty retailer. The launch is off to a phenomenal start. In fact, Rhode had the biggest launch in Sephora North America's history, exceeding the previous record by 2.5x. To celebrate the launch, we have the opportunity to ring the opening bell at the New York Stock Exchange, bringing together the trailblazing female founders that are part of the e.l.f. Beauty family. In terms of what's next, we're seeing significant pent-up global appetite for Rhode. International drives nearly 20% of Rhode's DTC sales, while 74% of the brand's social followers are from outside the U.S. We're excited to launch Rhode in Sephora U.K. this month and further its global reach. Turning to Naturium, a disruptive brand focused on ingredient-led biocompatible skin care. This quarter, we ran Naturium's first-ever awareness campaign, shaped by the voices of Naturium's loyal community who share how its products help them love their skin. The campaign reflects the brand's unwavering commitment to delivering the consistent skin care to everyone, everywhere, every day. [Presentation]

As we look ahead, I'm proud that we continue to lead with purpose as we strive to create a different kind of beauty company, one that is purpose-led and results driven. Our newly released fourth annual impact report demonstrates how we make the world a better place for every eye, lip and face. [Presentation]

In summary, we're excited by the momentum we're seeing across our brand portfolio and remain confident in our ability to continue to gain share and deliver best-in-class beauty I'll now turn the call over to Mandy to talk more about our second quarter results and our outlook for fiscal '26.

Thank you, Tarang. Q2 net sales of $344 million grew 14% year-over-year on top of the 40% growth in Q2 of last year. The acquisition of Rhode contributed $52 million or approximately 17 percentage points to our Q2 results. Looking to our organic sales trends. Our consumption outpaced category trends by over 3x, leading to 140 basis points of market share gains in the quarter. As Tarang mentioned, our Q2 shipments were below consumption, primarily driven by our decision to stop shipments on orders not reflecting our August 1 price increase. Pricing and product mix added approximately 21 points to net sales growth, partially offset by a 6 percentage point impact from lower unit volumes. Looking to our geographic regions. Our net sales in the U.S. grew 18% year-over-year in Q2, while international net sales grew 2%. As a reminder, this quarter, we lapped our launch into Rossmann, Germany in the year ago period, which marked our largest international launch to date. We are pleased with our continued portfolio and geographic expansion. We're in the early days of the international opportunity we see. For context, international drives approximately 20% of our net sales as compared to legacy peers having over 70% of their sales outside of the U.S. Q2 gross margin of 69% was down approximately 165 basis points compared to prior year. The year-over-year decline was largely driven by incremental tariff costs. This was partially offset by gross margin benefits from our price increase and mix. On an adjusted basis, SG&A as a percentage of sales was 56% in Q2 as compared to 53% in Q2 last year, primarily driven by ongoing investments in our team and infrastructure. Marketing and digital investment for the quarter was 23% of net sales as compared to 24% in Q2 last year. Q2 adjusted EBITDA was $66 million, down 4% versus last year. Adjusted net income was $41 million or $0.68 per diluted share compared to $45 million or $0.77 per diluted share a year ago. Moving to the balance sheet and cash flow. Our balance sheet remains strong, and we believe positions us well to execute our long-term growth plans. We ended the quarter with $194 million in cash on hand compared to a cash balance of $97 million a year ago. Our liquidity position remains strong with less than 2x leverage after our acquisition of Rhode. We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. The specific initiatives we're focused on this year include investing in our people and infrastructure, our ERP transition to SAP and our global expansion. I'm pleased that our transition to SAP has been successful since our go-live in July with Q2 marking our first full quarter close on the new system. Our smooth go-live is a testament to the exceptional talent and dedication of our e.l.f. Beauty team and partners. Now let's turn to fiscal '26. As we spoke about last quarter, we plan to provide a full fiscal '26 outlook once we had greater clarity on tariffs. To set the foundation, about 75% of our global production today comes from China. Between April 9 and May 13, we were subject to tariffs at the 170% level. From May 14 through the end of October, product imports to the U.S. were subject to tariffs at the 55% level. As of November, we are now subject to a lower tariff at the 45% level given the recent reduction announced by the administration. While tariff rates remain volatile, we believe the lead time of our supply chain gives us greater visibility into our costs for the second half of the year. Our outlook assumes that the 45% tariff rate stays in place for the remainder of our fiscal year. For context, we estimate every 10 percentage points of incremental tariffs results in a $17 million gross impact to our cost of goods sold on an annualized basis before any mitigating actions. For the full year, we expect net sales growth of approximately 18% to 20%. Adjusted EBITDA between $302 million and $306 million, adjusted net income between $165 million to $168 million and adjusted EPS of $2.80 to $2.85 per diluted share. We expect our fiscal '26 adjusted tax rate to be approximately 23% and a fully diluted average share count of approximately 59 million shares. Let me provide you with additional color on our planning assumptions for fiscal '26. Starting with the top line. For the full year, we expect net sales growth of 18% to 20% year-over-year. Within that, we expect organic net sales, excluding Rhode, to be up approximately 3% to 4% year-over-year. On top of that, we expect Rhode to contribute about $200 million in net sales over the 8 months since our August 5 closing date. Looking to the second half, our guidance implies net sales growth of 24% to 27% year-over-year. We expect Rhode to contribute 22 percentage points to net sales growth in the second half. On an organic basis, this implies 2% to 5% net sales growth. As Tarang discussed, we are pleased by the ongoing strong consumption rates we have seen in fiscal '26 to date and expect to continue to outperform category trends into the second half. We expect shipments to be lower than consumption as we cycle expanded distribution in Dollar General and the over 50% space expansion in Target that we had in the second half of last year. Turning to adjusted EBITDA. For the full year, we expect $302 million to $306 million in adjusted EBITDA, up 2% to 3% year-over-year. This implies adjusted EBITDA margins of approximately 17% in the second half as compared to 22% in the first half. There are 2 key factors impacting second half adjusted EBITDA margins. First, marketing. We are targeting marketing and digital spend in the 24% to 26% range for the full year. That implies marketing spend of approximately 27% to 29% of net sales in the second half, up about 600 basis points on the top end relative to the 23% of net sales we spent in the first half. We expect this to be partially offset by gross margin improvements. We expect our gross margin in the second half to be approximately 71%, up about 200 basis points sequentially relative to the first half with anticipated benefits from price increases and mix of business given our acquisition of Rhode. In summary, we're pleased to have delivered another quarter of industry-leading sales and market share growth. We believe we have a winning strategy and are in the early innings of unlocking the full potential we see for our growing portfolio of disruptive brands. With that, operator, you may now open the call to questions.

[Operator Instructions] And today's first question comes from Dara Mohsenian with Morgan Stanley.

I just wanted to delve a bit more into the corporate top line guidance for the year and the downside in the quarter ex Rhode when you think about the base e.l.f. heritage business. Just can you give us more of a sense for how much of a drag shipments was versus underlying consumption trends in fiscal Q2 around the pricing [indiscernible]? And a similar question for the back half, are you making up any of that gap from the pricing issue as you start to ship again? And maybe what's the total full year impact? Perhaps another way of asking it more simply is what are you expecting for underlying U.S. consumption trends? And then also, Tarang, just how did you resolve the issue around pricing with your retailers? Did it change the economics of the relationship at all going forward? Was it more just a temporary issue that you move past? And are there any issues with out of stocks that may impact forward consumption trends just as we think about the go-forward consumption?

Dara, I'm going to start off by answering the question. I'll start with Q2. As we said, we're very pleased with the consumption that we saw in Q2, outperforming the category. Category grew around 2%. E.l.f. brand grew around 7%, so almost over 3x what we saw from the category performance. When we talk about the pricing impact, that is the primary driver of the disconnect between consumption and the shipments that we delivered in the quarter. And so I would say it's never a one-to-one consumption to shipments, but we know that over time, consumption and shipments do net out. And so to answer your second question on are we going to pick up any of that as we go into the second half? Yes, I think it's fair to assume that we're going to pick up some of that as we head into Q3. But like I said, it's not going to be a one-for-one exact on the quarter. But over time, we do expect consumption and shipments will net out. Also to answer your question on underlying growth on the second half, as we talked on the call, on an organic basis, we're outlooking 2% to 5% growth on the top line. That, again, is led by strong consumption. Our consumption is up 10% on a fiscal year-to-date basis and has even strengthened as we've gotten into this quarter. And so again, pleased with what we're seeing from a consumption standpoint. But what we have in the second half is cycling space expansion at Dollar, about 11,000 doors in the base as well as our 50% space expansion in Target. So we are cycling that pipeline that's going to have an impact there from a shipment standpoint, but feeling very good about the consumer strength that we're seeing with that consumption continuing to be strong.

Dara, on your second question on pricing, let me step back a little bit and talk a little bit about our philosophy on pricing, which is different than many of our competitors. We believe in an everyday low price that's consistent across retailers. And so the way we've done that is we have -- we basically have the same price everywhere that same kind of low price every day. The other thing that's different and that contrasts with many of our competitors who tend to price higher and then discount or run promotions. We believe that approach has been really good for our consumers in terms of knowing that they can buy e.l.f. everyday low price. The other area that we're different is unlike many of our competitors who have large trade budgets, we don't offer trade funds for one retailer to embarrass another one in terms of sale and lower pricing. So that's our overall approach. In the quarter, what we had is our pricing went into effect August 1. We had a few retailers that are slow to reflect that new pricing. As soon as we don't see the right price on the PO, we don't fill that order. And the way we resolve that is it naturally resolves. Retailers want to have e.l.f. and they want to have it at the right price. And so we're now, as I said, resolved it. We're shipping normally, and it's a way of us keeping price sanctity in the market.

And our next question today comes from Olivia Tong at Raymond James.

You touched a little bit on this earlier, but where did you exit the quarter? And then can you help us understand sort of where the deceleration was the highest? It looks like it was both in the U.S. and international markets. Obviously, you priced them both. I know you just said you don't expect a one-for-one catch-up. But I'm surprised if it's just a disagreement towards when pricing first went into place and things are back to normal levels now, why you wouldn't expect more of a catch-up in a more rapid manner. So if you could help explain the discrepancies there, that would be great.

So from a consumption standpoint, as we talked, Olivia, we had about a 7% consumption rate in Q2. As we've gotten into Q3, we have seen that to be a bit stronger. So feeling great again from a consumption standpoint. In the quarter, from a U.S. versus international growth rate, we saw an 18% growth in the U.S. and a 2% growth rate in the international markets. Now as a reminder, the 2% on international, we are lapping or we're lapping the launch into Rossmann, Germany, and that was our largest international launch that we've had to date. And so that was impacting that international growth number as we cycled through that. And to answer your last question on the catch-up, like I said, shipments and consumption will net themselves out over time. But based on order patterns or maybe the consumer has kind of moved on from that order, orders are resubmitted at different levels. It's not going to be exactly a one-to-one catch-up on those shipments into Q3.

Got it. So just to clarify, you didn't see any of this consumption mismatch in your view in international markets with respect to pricing. It was primarily the tough comp associated with the launch into Rossmann in Germany?

That's right. I would say that was the primary driver of the international performance.

Got it. Understood. My second question is really around your view on tariffs and how much of the inventory that was at the peak has now flown through, whether all of it has flown through or there are some that continues to impact you in the second half? And then on marketing, I guess, why the need to increase it as much as you are planning in the second half? Are there initiatives in place that you want to support? Is it primarily behind Rhode? Just trying to understand that 300 basis point increase in marketing and what's driving that?

Yes. All right. So then on tariffs, so let's see here. Tariffs, as we talked on the call, a little bit of good news on tariffs with the administration calling out that tariffs were reduced by about 10 points to 45%. So we were pleased to hear that news. I will tell you that all in on an average basis, China tariffs impact to us this year is about a 60% tariff that we face, so versus the 25% tariff last year. So we have about 3,500 basis points of tariff headwinds that we're dealing with this year. I would say from a gross margin cadence standpoint, you are starting to see that gross margin improve as we head into the back half. In our prepared remarks, we talked about seeing a 71% gross margin in the second half. That's relatively flat to where we were last year from a gross margin standpoint. And on the year, if you play that through, gross margin is looking to be about down 100 basis points on the year. Again, most of that in the first half where we were down 200 basis points. So I think we have done a great job of shoring up gross margin as we've gotten into the second half of the year, again, with the pricing piece with Rhode coming into the mix, feeling good about our gross margin position given the headwinds that we faced from a tariff standpoint. And then on marketing, marketing really is a timing shift. So if you look at what we spent in Q2, we spent about 23% of our net sales behind marketing and digital. As we've talked all year, we want to be in that 24% to 26% range. We did have some campaigns shifting out into Q3 and to Q4. And so that, I would say, is just more of a timing thing. No difference in where we have been targeting marketing for this year in that 24% to 26% range.

And our next question today comes from Andrea Teixeira with JPMorgan.

I just want to follow up on the consumption number you gave us for year-to-date. So you said 10% year-to-date, which is supported. But then in the last -- since you implemented the price increase, can you comment on since August, I believe went through, how much was that? And then related to the performance that you had in Rhode quarter-to-date, I think it was like $57 million. Just curious with the shipment and consumption dynamics there. Understandably, you have the $200 million for the 8 months, but just to understand how we should be thinking in terms of the timing of the shipments, the Sephora initial shipments were not part of your $200 million. But just as we think about the potential for consumption in Rhode itself. So if you can give us the Rhode consumption number relative to the $212 million that they had prior to the deal.

Andrea, so first, to answer your question on consumption, even post the price increase on August 1, we've still seen consumption hold strong, which is very encouraging to us. And as I said, we've even seen it a little bit better as we've gone into Q3. So we feel great about the core business consumption. From a Rhode standpoint, we said $200 million is going to be the contribution on the year post acquisition. But on an annualized basis, Rhode is expected to be $300 million in net sales. That's a 40% growth on a year-over-year basis. And what you're picking up there, Andrea, is the $200 million, like I said, is post-acquisition. But then you're also picking up the $40 million from Q1 that was disclosed in the pro formas. And then the delta there, about $57 million is related to net sales or shipments that went out prior to us acquiring Rhode in Q2. So you'll see in our Q that's filed tomorrow, you'll actually see on a pro forma basis what Q2 would have looked like all in with Rhode for a full quarter along with e.l.f. results. You'll see that Rhode was about $110 million in Q2 from a net sales standpoint.

Sorry, just to understand the $110 million would be the difference, as you said, like the $57 million plus the actual consumption?

No. So the $57 million would just be their net sales prior to acquisition in Q2. So that's going to be a mix of D2C consumption plus shipments to Sephora. Those are initial shipments to Sephora.

Okay. And then going -- just to clarify what you just said, like August and Mandy, it is super helpful when you said, okay, it picked up even towards the third quarter. So what was the consumption in August and September and how we should be thinking relative to the 10%? Is that similar to 10% in August or that took a little bit of -- because the price increase on itself, $1 over $7.50 is a pretty large number. So I was hoping to see what the volume decline was if you were not seeing consumption accelerated even more than the 10%.

Yes. So in the August and September time frame, again, as Tarang mentioned, it took some time for retailers to roll that pricing out. And so you're right, on a dollar increase is about 15%, 16% growth from an AUR standpoint. And that's what I'm saying as we've gotten into Q3, we have seen that consumption be a bit stronger than that 10%. And so we're pleased with that our consumption is actually holding up given that we took a broad price increase, $1 across the entire portfolio. We have not done that before and are pleased that our consumption rates continue to hang in there.

And our next question today comes from Ashley Helgans with Jefferies.

This is Sydney on for Ashley. First, just starting with the guide. Can you just share a little bit more about your expectations for the category that are informing that kind of core brand growth expectation? And then when we think about Rhode, I would love to hear a little bit more about how you sort of are thinking about the balance between wholesale versus DTC. It looks like with the birthday launch, you're still doing some drops that are exclusive to brand.com, but would love to know kind of how you're thinking about that mix between the 2 channels long term.

Sydney, this is Tarang. So on -- our expectations for the category, we're pleased with what we're seeing in the category in the quarter, we saw the category up 2%, which is pretty consistent with the level that we've had for the last decade. So we're pretty much assuming similar rates of category growth for the balance of the year. And then in terms of Rhode, our strategy is a strong focus both on our Sephora launch, both in-store as well as online and our own DTC business. And the specific strategy on DTC is having some of these exclusive windows of -- for our DTC site. We see it makes a real big difference in terms of the impact we see on sales. So we expect strength in both wholesale as well as DTC. And again, the brand is off to a phenomenal launch at Sephora, continue to see strength in DTC and are excited next week to introduce Rhode into Sephora U.K. There's already a lot of excitement built up for that.

And our next question today comes from Anna Lizzul with Bank of America.

I wanted to go back to the question on the EBITDA guide. It looks like in fiscal Q2, margins were slightly better than expected on both gross margin and EBITDA. But the guide, as you mentioned, much lower due to the higher marketing spend. And I understand there is timing shift, but I think the expectation was that you would be getting some leverage on this line item in the future. Should we be expecting this high rate of marketing spend, excluding the timing shift moving forward? And then also, how are you allocating the spend between your brands now, especially with Rhode and the further expansion internationally?

Anna, great to hear from you. So on EBITDA for the year, so as we look at that, we are outlooking a 2% to 3% growth on adjusted EBITDA for the full year. From an EBITDA margin standpoint, it's somewhere in the 19% range, so maybe 300 basis points lower than where we were last year. And to your point on the marketing, 24% to 26% on marketing is what we had outlook last year, and it's consistent with where we are this year. So we've actually not taken that rate up. It's consistent on a year-over-year basis. And just for the second half, you're going to see that be a little bit more outsized just given the timing of that spend. I would say on the G&A side, on the non-marketing SG&A side, I do think that over time, we can get back to leverage there as well. We are continuing to be in growth mode. We're continuing to invest in our team and infrastructure. And when I say team and infrastructure, that really means making sure that we have the right resources here in the U.S. and internationally to support the growth that we expect to see. And then also making sure that we're showing up in the right way from a visual merchandising standpoint as we expand our distribution footprint, investing behind that as well. And so that's really what's driving some of that non-marketing SG&A this year as well. And so overall, again, given the tariff headwinds that we're facing, a 3,500 basis point tariff headwind this year, feel like we're net out in a pretty good spot from an EBITDA standpoint, showing growth on a year-over-year basis.

Okay. Great. And if I could add on a follow-up. In terms of pricing, we've been hearing from some retailers that maybe they were disappointed that e.l.f. actually led the pack with pricing recently and that others have followed in the space. And how do you think about your value proposition here and just the fact that maybe others have attempted to follow on the pricing side?

Anna, this is Tarang. I'll take that one. I would say on the pricing front, we've always led pricing. We've only taken 3 price increases in our history. And in each case, it's only been because of external factors. Our preferred approach for margin progression is innovation mix, and that's how we've successfully grown our margins over time. So on pricing, we expect it to be first because we've always been first. And then over time, people will follow. We haven't seen as much -- as many follow yet, but we have heard from many of our retailers that others plan to. So we feel confident in our overall value proposition. I mean our average unit retails, as we said after pricing, $7.50 compared to $9.50 before pricing for the legacy mass players and around $30 for prestige. Even after the pricing, 75% of our portfolio is still $10 or less. So we feel that value proposition is strong and will just get stronger as others follow the pricing.

And our next question comes from Peter Grom at UBS.

A couple of questions. Maybe just -- I'm kind of curious maybe to follow up on the EBITDA and EPS guidance a little bit. I think we and probably a few others are just trying to understand why there's not a bigger benefit from Rhode, especially just given in the pro forma financials you outlined that would suggest there was some solid accretion. So just kind of what are you assuming in terms of the EBITDA or EPS benefit as it relates to Rhode in this guidance?

Peter, so we still expect Rhode to be accretive from an adjusted EBITDA margin standpoint. To your point, they have had some incredible margins, but there are areas that we want to invest behind. Team is one of those. We want to continue to build out that team. And also in marketing, that's another key area where we see an opportunity to invest behind Rhode. And so overall, very pleased with what Rhode is contributing to this year. And as a reminder, this is our first time issuing guidance this year. So this is your first view into how we see things playing out. And again, with the tariff headwinds that we faced overcoming those and actually looking at having a flat gross margin as we go into the second half and then balancing that with continuing to invest behind the growth opportunities that we see, $302 million to $306 million in adjusted EBITDA, we feel is a solid place to be.

Great. And I guess just a question on international. I think you mentioned -- I forget whose question it was, but I think you mentioned it was up 2% in the quarter. So what's the underlying consumption growth outside of the U.S.? I know there's the sell-in dynamic, but how should we be thinking about the right underlying growth rate for international ex the shipment dynamic from here?

Yes. So international is going to continue to be a growth opportunity for us. As we think about U.S. and international and even on an underlying basis on the organic business, we expect to see growth out of both the U.S. and international on the year. And so we will have these moments from quarter-to-quarter where you're cycling a space expansion or something like that. But the opportunities remain. I mean we've talked about a number of international launches that still are in our plan for this year, whether it be Rossmann, Poland or Sephora in the GCC countries. We talked about Sephora Australia for Naturium. I mean there's a number of VM in Germany we'll be going into later this year. Just a number of opportunities still remain on the international front. And so we expect growth there as well this year.

And our next question today comes from Bonnie Herzog of Goldman Sachs.

I guess I'm hoping for a little more color on your expectation for the slow organic growth in your business this year ex Rhode. You didn't provide guidance earlier. So I guess I'm curious if your outlook for top line moved lower since the beginning of the year on your core business? And if so, why? I mean maybe could you guys touch on some of the key innovations that you have this year and whether they've -- I don't know, maybe fell below your expectations? And then I guess it does sound like consumers have absorbed your pricing. So elasticities coming in maybe in line with your expectations or better. I guess, ultimately, I'm struggling with the expected slowdown on your core business, even considering lapping the strong space gains that you called out from last year. Any color would be helpful.

Bonnie, great to hear from you. I would say -- I would start with consumption. On a year-to-date basis, our consumption is still quite strong, 10% on a year-over-year basis and even stronger as we start Q3. So we're feeling great about the consumer and how they're engaging with e.l.f. and they continue to choose e.l.f. From an innovation standpoint, our fall innovation is strong, growing faster than last year's fall innovation. That's something that we didn't see in spring. As we've talked about, our spring innovation was behind last year, given that we were cycling the exceptional launch of our lip oils. And so as we've come into the fall, we actually have seen fall outperform fall of the prior year. So that's also a good signal. On the whole of it, the main driver of why you're not seeing our second half outlook match up to that strong consumption we're seeing is because we're cycling that space expansion. Again, as 11,000 doors in Dollar General and a 50% expansion type expansion related to Target, that's really the primary driver of that disconnect between the consumption and the shipments outlook that we've given.

Okay. Just maybe a quick follow-up. So should I assume for the full year on core business, your consumption and shipments should essentially even out? Or do you expect, I don't know, consumption to remain stronger than shipments for the full year? Just trying to think through that.

Yes. So for full year '26, we've outlooked so 3% to 4% organic growth on the business, which is below the consumption rates that we're seeing right now. Again, it goes back to cycling that space expansion in the base over time. So it may take a couple of quarters to get there. But over time, shipments and consumption do net themselves out. And so yes, that would be our expansion that over time, we do see those numbers kind of marry up a little bit better.

And our next question today comes from Susan Anderson at Canaccord Genuity.

I guess maybe just touch on Naturium a little bit and how we should think about or how you're thinking about the growth of the brand going forward. I think the consumption data has slowed a bit recently in the U.S. So just trying to think about the cadence of new product rollouts there as well and then also new space for the brand, including internationally. And then not sure if you can give any color on Rhode and how you're thinking about kind of the longer-term margins for the brand, especially as you increase marketing spend for the brand.

Susan, this is Tarang. We feel great about Naturium. We're seeing great momentum on Naturium. We actually have seen a pickup in the growth rates on Naturium, both as we've taken a look at our target rates, but also our [indiscernible] Beauty and how strong Naturium is there. We mentioned the great launch we just had with Sephora in Australia and to pick up the space in boots. And so overall, we're seeing really good momentum for Naturium continues to build, and we're pleased, particularly as we put that awareness campaign on. We saw really good consumer response to that.

And then on the Rhode margins, we haven't given a longer-term outlook on the margins other than to say we expect those to be accretive to our EBITDA margins as we go through. Rhode is a beautiful business, very strong margins. We will invest behind the brand, as I mentioned earlier, but still expect those margins to be accretive.

And our next question today is from Oliver Chen at TD Cowen.

On the organic growth for the second half, the 2% to 5%, is the assumption that pricing is a double-digit benefit and then volume offsets that to be negative given the tough compares? And then secondly, on Rhode, I would love your view of the inventory levels currently at Sephora. I know it's been very successful. So how have inventory levels in terms of product availability been? And then as you look forward, there's a limit on the number of SKUs and tons of opportunity. What's on your Rhode map for that as well as -- our assumption is that it's Sephora for 3 years plus. Any thoughts or guidance there in terms of what you see happening with the footprint?

Oliver, so I'll answer the first question. On our organic growth in the second half of the 2% to 5%, yes, you're thinking about it the right way. Pricing will be a benefit. And then volume, we are expecting to be lower than last year, again, cycling those shipments, which would have been higher volume.

And Oliver, on your second question regarding Rhode inventory, I'm extremely pleased with the work the team has done to be able to keep up with the exceptional consumer demand we've seen. Our operations team has done a terrific job of making sure Sephora has enough inventory. The biggest challenge is getting that inventory on the shelf. And so similar to what we've done with e.l.f. in the past, we're partnering very closely with Sephora to make sure that they're replenishing those shelves more frequently just given the unprecedented demand that they've seen themselves. And so we feel really good about where we stand in terms of our ability to support the business and the demand that we see, and we'll continue to work on that.

And our next question today comes from Steve Powers of Deutsche Bank.

A couple of cleanups and then a question. So first cleanup is just, I think the 2% international growth would have included a little bit of Rhode. Just curious if you could call out the magnitude of that, number one. And number two, Mandy, there's been a lot of questions on the back half shipment headwinds from the space expansions that you're lapping last year. Maybe just if you could zero in on the magnitude of that and if there's any differential 3Q versus 4Q, that would be helpful. And then the question I had was around Rhode. You talked about the structure of the P&L and the accretion. But I'm curious on the gross margin line as that business moves from DTC to a hybrid DTC and wholesale revenue base, what impact does that have on the gross margin relative to the historicals that we've all seen?

Steve, all right. So the 2% growth that we saw in international, that would have included some Rhode volume as well. We've talked about Rhode having about a 20% international sales outside of the U.S. And so that would have been included in that 2% growth for Q2. On the shipment headwinds, like I've said here, the 2% to 5% that we're outlooking on net sales versus the consumption rates that we're seeing today, the primary disconnect between those consumption rates and the shipments that we're calling out, the net sales outlook we're calling out is cycling that volume. I would say that's the primary contributor there. And then on the Rhode P&L, from a gross margin standpoint, yes, we expect to see the gross margin come down as they transition more into a wholesale mix, but still the gross margin is accretive. It's accretive and our outlook as we stand today, it's already baked in, still accretive to where e.l.f. is positioned today.

And our next question then comes from Rupesh Parikh with Oppenheimer.

So I guess just going back to adjusted EBITDA margins, your guide implies around 19.5% this year. Is there a way to think about like the steady-state margins, I guess, going forward beyond this year to understand some of the temporary headwinds because you guys were in that 22% plus range prior to this fiscal year.

Rupesh, so this is just our first quarter getting back to issuing guidance. And so we don't have a longer-term algorithm out there of what to expect on EBITDA margins. But what I can tell you is that we have had a track record of improving those margins over time. And I talked a little bit earlier about leverage in our non-marketing SG&A over time. We're getting our gross margins back to a better place as we go in, to the second half and pricing kicks in. We have the 45% tariff in place now versus as we get into next year, the average 60% that we'll be cycling through. So there are some things that are working in our favor as we look out longer term that would enable us to improve those EBITDA margins over time.

Great. And then my follow-up question, just on Rhode, strong initial guide. Just curious how that -- I think you mentioned 40% pro forma growth for this year, how does that compare versus your initial expectations for the deal?

We're very pleased with the performance that we're seeing out of Rhode. I mean, Tarang talked about it earlier, 2.5x better than any launch Sephora has had in North America. I mean it's really a fantastic brand. We're so happy to have them as part of the e.l.f. family and look forward to continuing to drive that growth on the Rhode ahead.

Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to e.l.f. Beauty's Chairman and CEO, Tarang Amin, for any closing remarks.

Well, thank you for joining us today. I'm so proud of our incredible team at e.l.f. Beauty for delivering another quarter of industry-leading results. I'm also thrilled to officially welcome Rhode to the e.l.f. Beauty family. We look forward to seeing some of you at our upcoming investor meetings and speaking with you in February when we'll discuss our third quarter results. Thank you, and be well.