Allison Malkin - IR Tarang Amin - Chairman & CEO John Bailey - President & CFO.

Bill Chappell - SunTrust Oliver Chen - Cowen and Company Stephanie Wissink - Jefferies Joe Lachky - Wells Fargo Erinn Murphy - Piper Jaffray Andrea Teixeira - JPMorgan Linda Bolton-Weiser - D. A. Davidson Claire Chamberlin - Stifel.

Greetings, and welcome to e.l.f. Beauty Third Quarter Fiscal 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Allison Malkin, ICR. Please go ahead..

Good afternoon, everyone. Thank you for joining us today to discuss e.l.f. Beauty's third quarter 2018 earnings results. A copy of today's press release is available in the Investor Relations section of elfcosmetics.com. A recording of the call will also be available for 90 days on elfcosmetics.com.

As a reminder, this call contains forward-looking statements that are based on management's beliefs and assumptions, expectations, estimates and projections.

These statements, including those relating to the company's fiscal year 2018 outlook, are subject to known and unknown risks and uncertainties, and therefore, actual results may differ materially.

Important factors that may cause actual results to differ from those expressed or implied by such forward-looking statements are detailed in today's press release and the company's SEC filings. In addition, the company's presentation today includes information presented on a non-GAAP basis.

We refer you to today's press release for a reconciliation of the differences between the non-GAAP presentations and the most directly comparable GAAP measures. With us from management today are Tarang Amin, Chairman and Chief Executive Officer; and John Bailey, President and Chief Financial Officer.

For today's call, Tarang will discuss the business context and actions. John will then discuss our financial performance and guidance. It is now my pleasure to turn the call over to Tarang..

to obviously increasing investment in the e.l.f. brand; focusing on key items; and optimizing 2019 shelf sets. I'll now share the progress made on these initiatives that we believe will positively impact fiscal 2019. Our first focus is investing more behind the brand.

We have built a brand that beauty enthusiasts love, and we've done this at a marketing investment level of approximately 3% of net sales. We continue to believe it's the right time to invest more in the brand to break through in a noisy marketplace.

You'll see us be disciplined with an ROI-based test-and-learn approach and are also pursuing savings across the enterprise to help offset this investment.

In the third quarter, we started testing digital awareness-building campaigns in select regional markets that focuses on our high-quality extraordinary value proposition and the fact that we're the largest mass brand that is 100% cruelty-free, which resonates strongly with our consumers.

We plan to provide preliminary results of this test on our next quarterly call and additional detail on the marketing programs that we expect to phase in during 2019 to bring more consumers into the e.l.f. franchise. Our second area of emphasis in putting greater focus on key items. We have real differentiation and innovation, output and speed.

We launch over 100 items per year in as fast as 13 weeks. While we're proud of this innovation capability, we also have an opportunity to bring greater focus to some of our best items. In the third quarter, we put an integrated effort behind our Beauty Shield Magnetic Mask.

This $24 product is a great example of our high-quality extraordinary value proposition. The only other thing like in the market is a $75 Prestige product.

In the quarter, we introduced product-specific social media messaging, influencer collaborations and PR, including a feature on the TODAY Show and quickly saw our Magnetic Mask become one of our top items. The integrated investment behind this product was quite modest, and we're encouraged to leverage similar tactics in other key items.

We've already mapped out product integrations through the front half of 2019, including activations with leading national retailers. Our third key initiative is getting optimal assortment at retail. A major 2019 initiative that we expect to help improve productivity at retail is Project Unicorn.

This is a major product, package and shelf initiative that elevates brand presentation and improves navigation. We've been planning this initiative since 2017, when retailers began putting e.l.f. into significantly larger footprints, and we noticed that our predominantly black packaging became a sea of black in these larger sets.

Project Unicorn eliminates and changes the outer packaging on select SKUs, highlighting our premium componentry and colors. Another major benefit of this project is it allows us to fit more product with an existing space. We will also have improved signage, showcasing our leadership in categories like brushes and primers.

In Q3, we also finalized 2019 planogram designs for Target, Walmart and Ulta Beauty. Based on our planning with these and other key customers, we expect to maintain or grow our space in 2019 at every one of our major retail accounts. Let me tell you why. First, at both Target and Walmart, e.l.f. is the most productive brand in cosmetics.

Second, we believe we're still under-spaced relative to productivity at our major retailers. Last, our attractive consumer profile, strong innovation pipeline and powerful insights generated from our number one 1 mass cosmetics e-commerce site continue to make e.l.f. a valuable strategic partner to these national retailers.

In summary, we're aggressively focused on initiatives to drive growth in our business and are confident in our outlook for the remainder of the year. I'll now turn it over to John to discuss our financial results..

Thanks, Tarang. For the third quarter, net sales decreased 11% to $64 million. This is better than expectation shared during our last call, in part due to the timing of our Target holiday program, a portion of which we ended up shipping earlier than expected.

As a reminder, Q3 of 2017 was a very strong quarter and benefited from significant sales to discount channel customers as well as certain pipeline shipments to Walmart and CVS.

Gross margin increased from 60% to 61% in the third quarter of 2018, primarily as a result of changes in customer mix and margin-accretive innovation, partially offset by unfavorable movements in foreign exchange rates versus the prior year. We continue to proactively manage our expense structure.

On an adjusted basis, SG&A was $28.4 million compared to $28.8 million in Q3 of 2017. Adjusted EBITDA was $15.1 million versus $17.3 million in the third quarter of 2017. Adjusted net income was $8.4 million or $0.17 per diluted share based on a weighted average diluted share count of 49.1 million.

In the first 9 months of fiscal 2018, we generated over $35 million in cash flow from operations, bringing our cash balance to $33.6 million as of September 30, 2018, compared to $5.7 million last year.

We are pleased with our inventory management, with the quarter-ending balance of $53.4 million compared to $59.9 million in Q2 and $63.6 million last year. Turning to our outlook.

Based on operating performance through the first 9 months, we are reaffirming our net sales guidance of low single digits and raising the low end of the range for adjusted EBITDA, adjusted net income and adjusted diluted EPS. Implicit in our guidance is the assumption that Nielsen data continues to show declines through year-end.

As previously indicated, we expect growth in the specialty channel as well as pipeline for further 2019 expansion in Rite Aid to help offset these declines. Since our last call, the Trump administration announced a 10% tariff on the majority of cosmetics imported from China, potentially escalating to 25% in 2019.

As discussed, we expect to mitigate the impact of the tariffs through a combination of FX benefits, vendor concessions and selective pricing actions on a subset of our assortment. These pricing actions have already been communicated to our retailer partners. I would now like to ask the operator to open the call for questions..

[Operator Instructions] Our first question comes from the line of Bill Chappell from SunTrust..

One, I guess, quick question on adverse FX affecting gross margin. Maybe can you help understand that? I was kind of thinking that FX would be helping gross margin.

And then also, any more color you can give on kind of what you've done in marketing in terms of signing new influencers or where we can see that or how we can start to see if that's working?.

Sure. Hey, Bill, it's John. And I'll take the first part and turn it to Tarang to cover the marketing piece. So you're absolutely correct, that we have seen a good advantageous move in the RMB to the U.S. dollar over the last few months.

The important thing to note is the comparability to 2017 as you will, obviously, take note of those costs get taken into inventory and then work their way through the P&L when that inventory is sold. So there is a bit of a lag effect relative to where that rate would have sat last year versus this year.

And as of right now and to some extent, into the next quarter, we would expect that to be a headwind..

And then Bill, on your second question, regarding marketing, what I'd tell you on the influencer front is that we've - in the third quarter, one of the things that we did on influencers was a pretty big product collaboration called Modern Metals.

What this was is it stems from one of our Beautyscape events, where we actually had a competition amongst our influencers, to help design a unique collection and line. In this particular one, the inspiration was kind of metal texture. It's an edgy kind of style coming out of New Orleans.

And we had a group of influencers that basically developed with us a collection of an eyeshadow palette, blush, highlighter palette, lip gloss, matte lipstick. And the entire collection, I think, costs about $32. We introduced it both on elfcosmetics.com as well as Ulta Beauty.

While early, in the first few weeks, it's already our number two item on elfcosmetics.com. So it's an example of doing something a bit different with the group of influencers against a set of products. In addition, as we said in our prepared remarks, we're also testing awareness tactics as well as sampling.

We'll be able to talk to you in the next call in terms of what we're seeing on these test-and-learn and what that might mean in terms of ramping up in 2019..

Okay. And then just one follow-up.

As you look towards next year with - I mean, any further thought with tariffs coming in and what pricing you may need or are looking into?.

one, the FX and the advantaged benefit that we'll have heading into 2019. Certainly, a question mark is to where the rate goes from here. But certainly, relative to where rates stand and the inventory timing I mentioned, we see some real benefit in '19. Second is concessions from our vendor partners who we have long-standing partnerships with.

We've already secured a level of concessions, and to the extent that the next year of tariffs go through, additional concessions would be coming online. And then to your question, the third piece is strategic pricing on a selective subset of our assortment. And for us, we've long had pricing power on the brand.

I think starting roughly a year ago, when the border tax came into play, we've thought a lot about various pricing strategies.

Our approach has been to look across the entire portfolios SKU by SKU, competitively assess what else is in the market and where competitive items are priced, also where competitive items are sourced because as you know, many competitive items are actually being produced in-country as well and then, most importantly, understanding kind of where our value proposition sits relative to that competitive matrix.

And so to the extent 25% went through, we would be taking pricing on a subset of the overall assortment, but feel very good about some of the underlying assumptions and the process that we went through..

Our next question comes from the line of Oliver Chen from Cowen and Company..

Regarding your key partners, Walmart and Target, what are your thoughts on how the assortments are evolving in terms of the right products at the right time and the right place because it was previously communicated that they hadn't necessarily stocked into some - of the products that were - customers were responding well to in your own direct channels.

And on the Unicorn strategy, if you could just help us understand how to model the timing of Unicorn in terms of sell-in and what Unicorn does to your breadth versus depth and AUR, that would be helpful..

Sure. This is Tarang. So when you think about the assortment of our customers, we talked in the last call that we knew that we have not enough of our new products into these customers. When we take a look at kind of what our modeling was in terms of new products minus the beats, those items are actually going quite well.

Carryforwards were down, and so in the balance, getting more of our new products in was a key imperative of ours. We also described Project Unicorn as our main project to do that. And I think not everyone kind of understands really what Unicorn is. I'll just take a couple of minutes to kind of back up.

This is an initiative that we first started working in 2017, and it really stemmed as customers started rewarding us with more space. One of the things that we noticed was the elegant black packaging that we have that looks so great in a smaller set started looking like a sea of black in much larger sets.

So we began the initiative of Unicorn of how do we help customers navigate those sets even better. And then as you'll hear, a big benefit of that was also how do you get more product under the shelf. And so we took Unicorn. What it is, is the components in Unicorn, is first and foremost, is we take some of our products out of its black outer packaging.

We recently submitted a number of design patterns for a unique packaging approach that allows us to not only take those products out of the black packaging, but allow it to be shelved either on shelves or on pegs that a lot of our key retailers, like a Target and a Walmart, would use.

The benefit here is it showcases the premium componentry that e.l.f. has, the colors we have. But the other big benefit that it has is it allows us to put as much as 20% more product in the existing space.

And we're investing some of that pickup in efficiency in improved signage, which also will help in navigation, particularly in getting people to our key segments like our number one brushes, our number one primers as we go through. So in terms of the timing of Unicorn, we recently completed drawing planograms for Target, Walmart and Ulta Beauty.

The Unicorn will really hit shelves kind of in the first quarter of 2019. So during our next call, we'll be able to provide some more perspective in terms of how Unicorn's rolling out.

But the good news is, we do have confirmation in terms of how many SKUs as well as for our set designs that we're going to be able to get and in every case, be able to pick up additional new items that we can put into those stores..

Okay.

And when you step back, are you feeling like you're on track for like sustainable positive revenue growth or - and when you look at the - your own initiatives relative to how the market and the cosmetics market or as well as influencer market is evolving? Or what are the key factors you're monitoring in terms of visibility towards consistent growth?.

Hey, Oliver, it's John. Obviously, as we think about 2019 and beyond, be in a much better position to talk about how we see kind of the next year playing out when we're together next on the next quarterly call. Obviously, you guys can see what we've assumed for this year, which is continued confidence in kind of finishing the year out strong here.

And I think we've talked a little bit about the few areas that we're highly focused on to continue addressing growth in track channels. Obviously, other parts of our business, including specialty, with a comp cycle to where we're seeing very good growth, but for us, we want to make sure that we can bring everything up to our expectation..

Okay. Just last, a product question.

As you think about the right key items and where to simplify to amplify, what do you envision as the next kind of key platforms that you'll focus on in terms of undertaking the strategy you articulated?.

Yes. For us, Oliver, it really is about innovating across all of our key segments to make sure we're well positioned in terms of where the consumer goes. A couple of things I'd highlight. Obviously, we have a lot of confidence and hope for our skincare line. This is a line that in the last couple of years was introduced and we're seeing great results.

One of the things we talked about was how Magnetic Mask really popped in to be one of our top items behind the integrated focus on key items.

And so you'll see that key item focus across the range, and that would not seem to allow any one segment outside of skincare, which we're still on the early days, out to across eyes, lips, face, tools and skincare. You'll see key item focus on each of those areas or key-segment focus on each of those areas.

A great example from this last quarter, being our $5 Sheer Matte Liquid Lipstick, we've been in this category, we have a product that frankly compares to Prestige and is at around $22. And it's just another example of making sure we get this continuous stream of innovation to tap into what our consumers are looking for..

Our next question comes from the line of Stephanie Wissink from Jefferies..

I have three housekeeping questions, and John or Tarang, for either of you. The first is if you can just give us a sense of what your key item proportionality is as a percentage of the mix today.

So if you look at brushes, primers, so your key lead generation items, what percentage of your total sales do those represent today?.

So we haven't disclosed, Steph, for competitive reasons kind of what those - on this, the key item focus, what that represents. What I can tell you is, if you take a look at, well, starting with some of our key segments, we have America's number 1 brushes, America's number one primers.

I talked about the some of the key strengths that we have within that. The way we typically look at it is also from an innovation, new item standpoint. We've historically looked at kind of the 3m metric of kind of what percent of our sales come from items we launched in the last few years, and it's pretty high percentage on e.l.f.

And so we kind of use that matrix both ways in terms of what are the cores within the segment and then what are the cores in terms of the news that our consumers are looking for. But we can put some thought into it by next call if we want to break out first and add more dimension to the key item focus..

And then just two really quick ones. You mentioned marketing as a percentage of sales around 3%.

Have you talked about how high you're willing to take that and what your model would support in terms of marketing spend? And then, John, I'm wondering if you could just be willing to quantify the pull-forward in the Target holiday set this year versus what your original plan was..

Sure, Steph. Yes. I'll take both. Obviously, we'll be in a position to kind of frame up more specifics around those spend levels when we get into the 2019 call next quarter.

But we do acknowledge there has been a little bit of a confusion out there in the market coming out of the last call as to where those levels will go over time and some that were fearful that we may actually need to spend at the levels of many of our legacy competitors.

What we're talking about is not taking our levels up anything close to that, in fact, far from it.

I think as you heard on the commentary, as we think about putting incremental spend against the brand, which is the right long-term decision for us, it's really about phasing that in over time in a very of ROI-based way and so certainly, would expect to see benefits yielding from that spend.

But versus some big bang, I think you'll see that layered in over time.

The other thing that I would say, which we'll also be in a opposition to quantify much better when we get into 2019, is that we are actively focused on a number of different cost savings initiatives to be able to free up additional capacity through our P&L to be able to offset some of those investments. So more to come, certainly, as we go over time.

And then your other question, Steph? Apologies..

Just on the Target pull-forward in the quarter on your holidays, fall set..

Yes, yes. So it was a few million dollars. As you recall, on the last call, we did mention that Target did ask us to ship a portion of their holiday program early.

As we were together on the last call, our expectation was that, that program would go out exclusively in the fourth quarter this year, and they ended up, similar to 2017, asking us to ship a portion again early. So it was a few million that shifted from Q4 to Q3..

Our next question comes from the line of Bonnie Herzog from Wells Fargo..

This is actually Joe Lachky calling in for Bonnie.

So just to follow up on the Q3, Q4, so do you still expect Q4 growth to be in that mid-single to high single-digit range? Or with the pull-forward, could it fall below that?.

Joe, I would, obviously, would characterize a bit of that Target holiday timing, just with Steph's question there, and obviously, implicit in the low single-digit guidance, I think you will obviously assume that some of what we would have assumed coming in, in the fourth quarter moved into Q3.

So relative to what we talked about on the last call, you may see that reduced by the amount of that holiday shift..

Okay. That makes sense. And then looking forward, I know you don't plan to give guidance for fiscal '19 until February. But I wanted to see if you could build on your comments last quarter when you said that you expected fiscal '19 to be a low-growth year.

And I was wondering if you still expected that to be the case, I guess especially since there seems to be several positives looking into next year. In addition to the easy comps, you got benefits from the stepped-up advertising and Project Unicorn. So maybe if you could elaborate a little bit on kind of a longer-term outlook..

Yes, Joe. Unfortunately, nothing to add to what we've already said, but very focused in a few different areas which you mentioned. And we'll be looking forward to be able to quantify some of that when we're together in February..

Our next question comes from the line of Erinn Murphy from Piper Jaffray..

A couple of questions for me. First, on international. I didn't hear you talk about that during the prepared remarks. Can you just give us any updates on how your U.K.

market is performing? And maybe just kind of help quantify how are sellouts trending there for the brand, given it's so much earlier in its growth phase versus here in the U.S.?.

Sure. Hi, Erinn, it's Tarang. We feel great about our international business. So specifically, on the U.K., as you know, we launched into Superdrug last year. We're now in a good portion of their doors. In Q3, we actually entered Boots, both online as well as in 40 of their top stores.

So Boots is starting to kind of both test and rollout e.l.f., and so we feel great about our U.K. business and kind of where we're headed. And it's very much along the strategy that we see where we've had really good success going kind of direct to key accounts, proving the brand out in a particular retailer and then expanding from there.

We talked last call in terms of some of the caboose we're making in Germany as well. I would tell you, broader in terms of international, it's a combination of really two things. One is accelerating our move of going more direct versus through distributors.

We have some very good distributors, but similar to when we bought the company 5 years ago, we spent a lot of time, I'd call it, unwinding certain distributor relationships for our ability to go more intensely just in a particular market directly.

The U.K.'s probably the best example there so far, where about 2.5, 3 years ago, we changed from a distributor that have handled our e-commerce business to be able to do it ourselves. That, we believe, set kind of the groundwork for our entry into Superdrug. We like what we see, by going to Superdrug directly and now with Boots.

And so you see, as part of international strategy, really both happening concurrently, unwinding certain distributor relationships and going much more intensely directly, which we see is a very efficient and scalable model for us to continue to grow international..

And then just two clarifications. Just on pricing, kind of post tariff, and as you think about the 25% tariff into next year, you said you're taking kind of select pricing across the kind of product portfolio. You've talked to your retailers about that.

On average, how much are you taking at pricing? And is that enough to neutralize the tariff? Or should we anticipate some kind of a bucket of margin pressure if you can't fully neutralize the 25% increase?.

So Erinn, it is on a subset of the assortment. So obviously, less than half, just to put a finer point on that, and it really is SKU-specific. So again, our process really did go item by item and considered what else is out there competitively and what our core value proposition is to the consumer.

So the amount of pricing really does vary depending on the item and that kind of competitive matrix overall. To your question, while we'll be able to quantify puts and takes when we're together in February, our assumption is that we will be able to offset the entire impact of the 25% tariff next year..

Okay. And then just the last question, just as we think about 2019 resets for retailers, are there any major changes in timing from what you can see now in terms of when these retailers will change 2019 versus 2018? I think Walmart was a little bit later just in most recent years.

So just curious on how you're thinking about the product fill as we go throughout the balance of the fourth quarter and into next year..

Yes, I believe it's - right now what we've seen is pretty similar timing to what we saw this year in terms of when resets will happen. So Walmart's going to stick to the same fill or week in their fiscal year that they're changing over. Target's pretty much the same and Rite Aid's as well.

So I don't think you'll see any big shifts from - between fiscal years in terms of our expectations that we said could sometimes happen if somebody goes in earlier or later..

Our next question comes from the line of Andrea Teixeira from JPMorgan..

So my questions are, first, on the SG&A spending being down year-over-year. Can you talk about the drivers for the decline? This is the second quarter of SG&A declining.

Do you see here in absolute terms and also on a percentage basis? So are you thinking that the SG&A spending is supportive of resuming the growth into next year, or we will need to reinvest more in infrastructure going forward? And I have a follow-up question..

So Andrea, obviously, spend within a quarter. So tough to unpack that too much other than to say we're quite pleased with the kind of disciplined expense management that we've had, control in certain areas like overhead as an example.

As we kind of think about next year in investment levels, I think the two kind of major moving pieces that we've talked about quite a bit are the increased brand support, which is an investment that we're quite excited about as well as the series of cost savings initiatives that we're currently pursuing to help offset that spend, but nothing else that I would point you to..

Yes. But the total, so you're saying the total level of spending, you're happy as it is right now to support growth into 2019? Or you're still - as you're saying, like you might have a shift probably on a quarterly basis into the fourth quarter.

Is that what we should conclude?.

Well, as it pertains to 2018, as you'll note, as was the case in any year in our business, just given the seasonality, we typically do have higher levels of dollar spend in the fourth quarter than we do in other quarters throughout the year.

So I won't provide more specifics in that other than what's implied by our guidance that we just provided today, other than that's been pretty typical for the business. Going forward, again, I think I would just point to investment areas being brand support, which we're enthusiastic about, and then cost savings to help offset that spend..

Right.

And then on tariffs, everything you've seen from concessions, the tax changes and the pricing discussed with the vendors, will it be enough to offset the 25% tariff increase?.

We'll be in a position to provide finer points on that, but currently, our belief is we will be able to offset that impact. That's correct..

Our next question comes from the line of Linda Bolton-Weiser from D. A. Davidson..

So in terms of the fourth quarter, the growth that we're seeing there, the expected growth is predominantly the Rite Aid channel fill sales.

Is that expected to be completely done in fourth quarter? Or will some of that go over into the first quarter of 2019?.

Hey, Linda, it's John. So for the fourth quarter, I think the 2 things that I would point to as kind of major growth movers would be growth in our specialty business, including Ulta, as well as pipeline for the expansion into Rite Aid.

To your core question, that will - the pipeline will go out in the fourth quarter, so no spillover from a pipeline perspective in Q1 of '19, though certainly, we'll have the replenishment business..

And then when you talked about the gross margin performance, I believe you said that customer mix was a positive factor in the quarter. Can you just elaborate a little bit more? Like what is the rank order of customer mix? I mean, I assume you're talking drug versus specialty versus mass versus international.

But how should we - can you just give us a little more understanding of what positive mix represents for you?.

Yes, I sure can, yes. And to put a finer point on it, I'd say, in this particular quarter, the biggest one to note would have been the comparable sales to discounters relative to last year. As you'll recall, from the Q3 '17 remarks, we did have significant sales to discount customers, which we do have in each and every year of our business.

They just so happen to be highly concentrated in the third quarter. This year, in Q3, our sales through those players were very small on a relative basis. And so far and away, that was probably the biggest mix item that I would point to, though certainly, we also have some benefits from Sweeten the Mix that were in there as well..

Okay. And then finally, I think that you had originally said you were baking in kind of Nielsen POS being down about 10% or so, if I'm remembering, in the second half.

How are things actually tracking versus what you've figured into the plan, better or worse, about the same?.

Yes. So on the last call, we actually assumed that Nielsen would be down 10% on an average basis throughout the back half of 2018. Obviously, in the last quarter, you've seen prints that are a little bit better than that.

The only sort of assumption that we're pointing to, implicit in the guidance, is that Nielsen continues to be negative throughout the balance of the year. In fact, you may see it get a little bit worse just due to the timing of some merchandising programs, but that has been incorporated in the guidance we just reaffirmed today..

[Operator Instructions] Our next question comes from the line of Mark Astrachan from Stifel..

This is actually Claire Chamberlin on for Mark. A question is on skincare. Just you reiterated your excitement about skincare, which we definitely think makes sense, given the overall strengthening of the skincare market.

But why have we seen some deceleration and traction of data? And are there any offsets in other channels like the test and also that you mentioned last call? And if so, what contributes to more success there versus track channel?.

Hi, Claire. This is Tarang. So some of the confidence comes really in 2 fronts. So on the track channel piece, I may not be fully following other than kind of as I take a look our Target data, that looks quite strong, particularly as I look through kind of Magnetic Mask.

At Walmart, we've had some out-of-stock issues on the sea of our kind of permanent display pieces. So I don't know if that's clouding kind of any of the skincare numbers. We have a few - fewer items we see on skincare than when they had in the skincare set.

But I can tell you, just because we've tested on the planograms, they're quite bullish on our skincare as well. And then outside of track channels, really, Ulta Beauty revenues. So we've been testing and we've been doing quite well with skincare and the subset of doors that we have tested in.

And I think, a little bit later this year, they will make their decision on skincare. So overall, from a trend standpoint, particularly as we look even within our own direct channels, we see really strong results on skincare as we go forward.

And then second, I always go back to kind of the core pipeline and the key item focus that I talked about earlier in terms of our ability to kind of drive that. Still very much very early days in skincare, and I would put our pipeline up against anyone else in some of the things that we see coming..

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Tarang Amin for closing remarks..

Well, thanks again for joining us. We're aggressively focused on initiatives to drive growth in the business in our comps and in our outlook for the remainder of the year.

We look forward to updating you on our next call, on our initiatives to invest more in the brand, integrate efforts behind the - our key items and improve our retail assortments of Project Unicorn. Thanks, and we'll see you next quarter..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..