Greetings, and welcome to the e.l.f. Beauty, Inc. Second Quarter Fiscal 2020 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Willa McManmon, VP of Investor Relations and Corporate Communications. Thank you. You may begin.

Good afternoon, everyone. Thank you for joining us today to discuss e.l.f. Beauty's Second Quarter Fiscal 2020 Earnings Results. My name is Willa McManmon, and I'm Vice President of Investor Relations and Corporate Communications at e.l.f. For the past year, I was part of e.l.f.'s outside IR firm, Ellipsis. In September, I joined e.l.f. in-house. I've been heading up IR and Communications at companies like Trimble and Cisco Jasper for 20 years, and I'm thrilled to be a part of the e.l.f. team and mission. As a reminder, this call contains forward-looking statements that are based on management's assumptions, expectations, estimates and projections. These statements, including those relating to the company's fiscal 2020 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 me from management today are Tarang Amin, Chairman and Chief Executive Officer; and Mandy Fields, Senior Vice President and Chief Financial Officer. With that, I'll turn the call over to Tarang.

Thank you, Willa. It's great to have you on the team. Good afternoon, everyone, and thank you for joining us today. We're pleased with our second quarter results with net sales of $68 million and adjusted EBITDA of $15 million. Excluding e.l.f. stores, net sales were up 11% versus year ago. We're also taking market share. According to Nielsen, in the 12 weeks ended October 5, 2019, our dollar share of the color cosmetics category was 4.7%, up 70 basis points versus year ago. Given this momentum, we are, again, raising our fiscal year guidance, which Mandy will outline shortly. We entered fiscal year 2020, laser-focused on 5 strategic imperatives to drive top line and market share improvements. Let me provide a brief update on each of these. Our first strategic imperative is to drive demand in our brand. We have a compelling mission to make the best of beauty accessible for every eye, lip and face, and it's our job to make sure we're communicating our unique value proposition. We are pleased with the initial results behind our #elfingamazing campaign, which delivered 175 different versions of playable ads to peak consumer interest based on their affinities. Examples include: e.l.f. control, which shows a consumer filling up her shopping basket with e.l.f. products to celebrate our premium quality and extraordinary value; and e.l.f. respect, which underscores the fact that we are cruelty-free and vegan. A YouTube brandless study that we commissioned found that digital ads had video completion rates of around 50% and ad recall around 60%, both far above benchmarks. Based on our initial success, we chose to take up our marketing plus e-commerce spend to 14% of net sales for the quarter, and we expect spend to land in the 12% to 14% range for fiscal 2020. Our second strategic imperative is a major step-up in digital. e.l.f. was the first digitally native mass beauty brand, and we've always focused on authentic engagement with our consumers. We continue to expand our digital presence and test new platforms. Last month, we sponsored the #eyeslipface challenge on TikTok, a video music platform with hundreds of millions of users and a huge following among Gen Z. The e.l.f. challenge encouraged people to record their own 15-second video to an original song Eyes. Lips. Face., which we commissioned from a Grammy award-winning songwriter. The campaign resulted in a number of firsts, including most views upon launch, first paid ad to hold the #1 trending hashtag on TikTok, and first branded hashtag challenge to feature an original song. The response has been incredible. Over 1.5 million videos have been created, the record for any TikTok brand challenge, generating a staggering 3.2 billion views. Our major step-up in digital has resulted in increased e.l.f. presence across digital platforms. We recently reached 5 million followers on Instagram. Our Beauty Squad Loyalty Program now has over 1.5 million members, and most importantly, elfcosmetics.com and our retailer.com sites continue to show strong growth. Our third strategic imperative is providing first-to-mass prestige quality products at an extraordinary value. We know how to make products people want at e.l.f. speed. Our newest Holy Grail products like Poreless Putty Primer and 16HR Camo Concealer continue to perform well, supporting our leadership in the primer category and adding to market share gains in the concealer category. In the fall resets, we've also seen strong performance behind our $2 Wow Brow, 18-piece eyeshadow pallettes and our total face sponge. We're also seeing strong success in skin care. According to Nielsen, for the 12 weeks ended October 5, 2019, e.l.f. skin care sell-through was up 39%. Our recent innovations built on a foundation of e.l.f. products that have seen multiyear success and are still driving sales to make e.l.f. the number one mass brand for primers, eyebrow pencils and brushes. We also continue to expand our reach through new product collaborations with key influencers. Last month, we introduced a collection with Nabela Noor, a Bangladeshi-American beauty influencer whose 1.2 million followers embrace her platform of self-love and inclusivity no matter your age, size or skin color. The launch resulted in over 140 million impressions from leading beauty media outlets, including allure.com, refinery29.com and the zoroport.com, as well as another 81 million reached through influencers. These results show the power of product collaborations to amplify the e.l.f. brand. Our fourth strategic imperative is to improve national retailer productivity through Project Unicorn, our multiphase, multiyear package and self-initiative. As of the second quarter, the first 2 phases of Unicorn, which include most of our retail SKUs, are complete. We're pleased that Unicorn, alongside our marketing activation, has resulted in a meaningful step-up in productivity. We remain the most productive brand on a dollar-per-foot basis at both Walmart and Target, our 2 largest customers. We're also growing productivity at Ulta Beauty, our third largest customer. Phase 3 of Unicorn is expected to roll out during spring resets and is designed to bring better visual merchandising to our key innovations. In addition to our national retail partners, we also saw productivity gains across our other channels with double-digit growth in our retailers.com sites and on elfcosmetics.com where we're enhancing the e.l.f. consumer experience with capabilities such as machine learning and personalization. We also saw growth in our international business, especially in the U.K., driven by Boots and Superdrug. Our fifth strategic imperative is to generate cost savings to help fuel brand investments. Our most important cost savings initiative was closing our 22 e.l.f.-branded stores in February. This was a difficult decision as it impacted half our employee base, but we move boldly and with e.l.f. values to do the right thing for our employees. I'm happy to report that we successfully exited our 22 store leases for well below what we expected at the onset of this transition. Redeploying the $13.7 million in annual spend that we used to invest in stores is driving greater momentum in our national retailer and elfcosmetics.com businesses. We're also making good progress on our automation, new plan initiatives in Southern California and hope to be operational by the end of this fiscal year. Another important productivity and cost initiative in the second quarter was executing price increases to help mitigate tariffs. Recall, we increased prices on approximately 1/3 of our SKUs. This pricing action was most significant in almost 16-year history as we've primarily used innovation mix to drive average unit retails. I'm happy to report that all our national retail partners have implemented the price changes and that our initial unit declines are lower than what we modeled. Pricing delivered approximately 200 basis points of the 11% net sales growth for the quarter. We will closely monitor the long-term impact as we move forward. The progress on our 5 strategic imperatives is encouraging. What gives me the greatest confidence in our future is the quality and dedication of our team. Over the past 5 years, we've hired 190 of our approximately 200 employees. Our team comes from blue-chip, beauty and consumer backgrounds, and they love moving at e.l.f. speed. I'm proud that our employee base is 75% female, 60% millennial and 40% diverse, reflecting the consumers that we serve. I'm also proud that of all the companies listed on U.S. exchanges, e.l.f. is 1 of 37 companies with more than 50% women on the board. I have confidence in this team's ability to continue to recharge and grow the brand. It's an exciting time at e.l.f. Beauty. We're pleased with the progress executing our strategic imperatives. These are long-term initiatives that we believe will build shareholder value. With that, I'll turn the call over to Mandy to discuss our financial results and guidance.

Thank you, Tarang. I'm also pleased with the second quarter results and the initial impact of our strategic imperatives. Let me cover the financial highlights of the quarter ended September 30, 2019, as compared to the 3 months ended September 30, 2018. Excluding e.l.f. stores, net sales of $67.6 million were up 11% from year ago driven by increased productivity across channels and the initial impact from price increases, partially offset by the lower holiday shipments that we discussed last quarter. For the first half, net sales were up 9%, excluding e.l.f. stores, and up 5% on a 2-year stack basis. Gross margin of 64% was up 300 basis points compared to prior year. The improvement versus last year was primarily driven by price increases taken in late July, along with margin accretive innovation, vendor concessions and favorable foreign exchange rates, partially offset by tariffs. Note that Q2 gross margin was higher than our forecasted run rate because we have the onetime benefit of higher pricing without the full impact of tariffs at the 25% level. We expect the full impact of tariffs at the 25% level in the back half of this year. As a reminder, our inventory value will also increase as we bring the tariff goods into our warehouse, though unit inventory should remain relatively flat. On an adjusted basis, SG&A as a percentage of sales was 51%, up from 45% last year, primarily driven by increased investment in our marketing digital initiatives and increased depreciation expense related to customer fixture programs. This is partially offset by cost savings from the closure of our 22 e.l.f. stores. In Q2, marketing and e-commerce spend was 14% of net sales compared to 7% in the year ago quarter. On the last call, we discussed marketing plus e-commerce spend between 10% and 12% for the year, while reserving the right to take spend up based upon what we see on the top line. Given the top line results, we expect to see marketing spend at 12% to 14% for fiscal 2020. Adjusted EBITDA of $15 million was down 1% versus $15.1 million a year ago. Adjusted net income was $7.7 million or $0.15 per diluted share compared to $8.4 million or $0.17 per diluted share a year ago. We generated $4.1 million of cash flow from operations in the quarter, bringing our cash balance to $58.7 million as of September 30, 2019, compared to a cash balance of $33.6 million last year. The improvement was primarily driven by stronger operating results, partially offset by a decrease in other liabilities related to termination payments on store leases. In the second quarter, we repurchased approximately $1.5 million of stock against our $25 million share repurchase program, bringing the total amount repurchased to date to $2.5 million. Our investment priorities remain focused on our 5 strategic imperatives as well as strategic extensions. Now turning to our fiscal 2020 guidance. We expect net sales to be up 4% to 6% versus fiscal 2019, excluding the impact of e.l.f. stores. This is up from the negative 4% to flat range previously guided. We expect adjusted EBITDA between $52 million and $55 million, adjusted net income between $23 million and $25 million and adjusted EPS of $0.44 to $0.48 per share on a fully diluted basis with a share count of 52.5 million. We continue to expect our tax rate to come in at 28% for the year. The raise in guidance this quarter reflects the momentum we're seeing in our top line sales. We are balancing that momentum with the backdrop of a soft color cosmetics category as well as monitoring the impact of pricing on a longer-term basis. As a reminder, we expect to see a $6 million impact on net sales in Q3 from cycling a larger holiday program and pipeline in the third quarter last year. Additionally, we will face a tough comp in the fourth quarter as we anniversary the Poreless Putty Primer and 16HR Camo Concealer launches. The organic influencer activity around those launches resulted in a halo effect that drove strong sales in the year ago quarter. From an adjusted EBITDA margin perspective, we are maintaining our 19% to 20% margin expectation for the year. As I stated earlier, in Q2, we had the onetime benefit of pricing without the tariff offset at the 25% level, which drove higher margins. Overall, the 19% to 20% range is consistent with what we've expected since the beginning of the year. Before I turn the call over to questions, I want to reiterate that we are encouraged by the positive top line trends we're seeing and the direction the business has taken over the last few quarters. We remain focused on executing against our strategic imperatives. With that, operator, you may open the call to questions.

[Operator Instructions]. Our first question comes from the line of Steph Wissink with Jefferies.

We have a question and then one clarification, if we could. The question, Tarang, is for you. Just broadly speaking, as you step back and look at what's happening in the color cosmetics space, can you give us some sense of where you feel like you're providing the consumer an advantage, whether it's through product innovation, price advantageousness or just providing a better experience at retail? Why do you think you're able to book some of the trends we're seeing? And then, Mandy, for you, just a clarification on the tariff impact. Can you remind us what percentage of your business is coming from China? What percentage we should think about would have that gross margin effect of a 25% increase? And then how have you been working with your vendors on the concession side? How should we think about tariffs in totality for the year in terms of the impact?

Steph, well, in terms of our consumer advantage, I really do think it comes to the heart of our overall proposition of providing the best of beauty and making it accessible to every eye, lip and face. And reestablishing that core mission and our ability through these 5 strategic imperatives to do so. I think that's how we're bucking the trends in the category. I think the category in the 12 periods ending October 5 was down about 4% on a track basis. Our ability to kind of pick up 70 basis points of share in that category is a direct reflection on the 5 strategic imperatives I just kind of reviewed, which really go back to the core fundamental proposition that we offer consumers.

And then, Steph, on the tariffs, so about 70% of our business is subject to the tariff at the 25% level. The remaining 30% is subject at the 15% level. Now there were lashes and some smaller things that were impacted by the September 1 here. And then there's the December 15 tariff that will be coming, and that impacts our brushes and tools business. And in terms of how we're working with our team there in China on vendor concessions, again, they are always tasked with finding savings, and that's no different for this year. And so our team is actively generating savings to help offset some of that tariff impact.

The last thing I would say, it is a balanced approach. So we are benefiting from both FX, the cost savings initiative Mandy talked, and we're particularly pleased with the execution we've had on pricing. Recall, we -- our approach on pricing was we took about 1/3 of our SKUs up in price. We did not do a peanut butter approach. We really targeted where we thought we have the best consumer value, and the consumer response to that has actually been quite strong. I mean generated about 200 basis points of our 11% sales growth. So we're really pleased with pricing, at least in these early days.

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

Congrats on solid results. Regarding pricing, you've had a nice momentum there. What are your thoughts and learning from what you're doing going forward with pricing? And also, Tarang, in the context of the market trends you're seeing in terms of the softer color cosmetics and the promotional environment at competitors and department stores and others, would love your thoughts on how that might manifest, as well as Phase 3 Unicorn and what are some of the factors you're monitoring around Phase 3 that we should also pay attention to.

Oliver, I would say on pricing, building on my last comments, the execution has gone better than we expected, mainly because we really did focus on making the right value equations and taking a consumer-centric approach to pricing, including not touching pricing on some items where we really wanted to make a statement like our $2 brow products, which are doing extremely well. In terms of going forward, I think we are cautiously looking at the market overall, just given how many different brands will be taking pricing. As the leader of the value segment, we very much led pricing in our segment. And we've since heard a number of competitors announced they're taking pricing. In this past period, we've seen some of those start to be reflected on shelf, others not. So we'll want to take a look at what happens to consumer behavior as other prices go up. In terms of other initiatives, Unicorn certainly has helped our productivity and helped us kind of weather the pricing at our national retailers where we've seen a pickup in productivity. Phase 3 really is focused on better visual merchandising on our key innovations. As I think of Phase 1 and 2, which are now complete, while they're the majority of our SKUs and we have done a really great job, we believe there's a further opportunity to really make sure that we're highlighting these Holy Grail, first-to-mass products that we uniquely can offer the consumer. And that's really much what Phase 3 is going to be about.

Okay. And just a follow-up, on holiday, you've done a really good job executing on gifting in the past. What are your thoughts about what you're focused on this holiday versus last year? And how the consumer and trends might be shaping up as the key catalyst of the holiday period is a little bit different this year and there's a mixed headwinds and tailwinds?

Sure. So holiday is always an important program for us, I'd say, especially with Target, which is our longest-standing customer who's always done a really nice job on their holiday program. As Mandy mentioned, this year, we do have a smaller holiday program planned. I think as we looked across various customers, really, our level of holiday is probably going to be a bit smaller this year. But I'm especially excited by our overall presentation and offering. In fact, if you go on elfcosmetics.com right now, you'll see our holiday gift guide as well as our kind of a core assortment. I think it's the best assortment we've had and the best program we've had on holiday. So while the overall program size will be smaller, it continues to play an important role in terms of elevating the brand and bringing greater awareness to us.

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

So I was hoping to if -- to clarify if the new guidance embeds more doors or more displays than before or just high velocity. And on the tariff impact, is it fair to say that because you took pricing in July, and obviously, you're mitigating -- as Tarang and Mandy said, mitigating with cost saves and also with the facts working in your favor, is it fair that all things equal, you're probably going to have a margin expansion into the next few quarters until you have the full impact of the tariffs and also because of your -- the timing of your inventory?

Okay. Yes, I'll take those questions, Andrea. So just to clarify, on the new guidance, no, it does not include any new doors. It really reflects the momentum that we're seeing in the business coming out of the first half of the year, balanced with the other items that I called out in my prepared remarks. On the tariffs side. So we are mitigating the tariff impact, but I will say that in Q2, we saw a onetime benefit is how I would characterize it from pricing. As that inventory starts to roll, and to your point, we will start to see margins erode. And so I would not say that I expect to see a margin benefit in the back half of this year. We do expect to start to see that 25% tariff level as we enter the back half.

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

Team, it's Eric Johnson on today for Erinn Murphy. First, I was curious if you could update where you're at on the Beauty Squad. I think you were over 1 million members last quarter, and I know you've added some personalization elements and other improvements. So I'm just curious what you guys have learned there over the last 90 days or so.

Sure. We're excited about our Beauty Squad Loyalty Program. We're now up over 1.5 million members. As we talked on our last call, we continue to add functionality and benefit features to that program, including receipt scanning. Some of the key -- as I mentioned, some of our key initiatives in machine learning and personalization include kind of dynamic product recommendations, customized messaging across our various platforms, including e-mail and text and then optimize media placements on the Beauty Squad Loyalty Program, and that's benefiting the brand overall and on the Beauty Squad Loyalty Program. It's also benefiting as is receipt scanning. So we remain bullish on Beauty Squad to be able to drive the brand and help propel elfcosmetics.com, which is seeing even stronger growth than our overall national retailer business.

Great. That's really helpful. And then on the marketing mix, it's been encouraging to see that upsized here and the guidance parameters for that raise. What channels are you specifically seeing the best return on that incremental spend? Is there any 1, 2 or 3 places you'd point us to, to monitor?

Sure. So the great news with our overall marketing activation is we're seeing strength across all channels. So we have seen growth across our national retailer business, elfcosmetics.com, and retailer.coms. And so we feel great about the growth given how broad scale the growth is across all channels. Certainly, our digital channels, given much of the spend is digitally oriented, are growing even faster. That includes both elfcosmetics.com as well as our retailer.coms, but there's great growth across each of them.

Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey.

Can you just -- I guess, trying to understand how much of the impact of both pricing and tariffs were in the quarter and with the thought that I assume pricing went through September 1, and then the tariffs of the products that kind of started to hit or impact you probably was around that same time as well. So is that the right way to look at it? You probably had about 1/3 of the impact on both pricing and tariffs and you'll get the full impact this quarter?

Yes. So I think the right way to think about that, Bill, is when we talk about the tariffs that impacted Q2, that's still at the 10% level that we're looking at. We didn't really have a lot of the 25% level creep into Q2. We'll see that in the back half of the year. So you should expect the full impact of tariffs as we go into the second half at the 25% level. On the pricing side, so our pricing implemented in late July, so there's nearly a full quarter's worth of pricing included in the numbers for Q2.

Okay. Perfect. And then, Tarang, as we look forward to the resets next year, any color you can give us both on incremental shelf space at key retailers that you expect and/or kind of new product launches? I know in the past, part of the issue was getting all the products that you wanted into the retailers at the right time. And so just kind of understanding how that works for the spring resets.

Sure. So our incremental space, we usually don't comment on until after it started to be implemented. So for this year, the only space assumptions that we've previously disclosed are we did pick up additional space and a subset of Ulta doors. We did pick up distribution at Walgreens and Boots. And then, as part of Unicorn, we have, I think, much better merchandising as part of Unicorn. I'm particularly pleased with the flex towers that we have at Target. They really showcase our leadership segments. It almost looks like a space expansion for this year. And so we'll continue to build on that momentum as we enter the spring resets next year and continue to partner with our key retailers. So we will talk about space, really, when we're talking about kind of next fiscal year versus now, and a lot of that just has to do with our customers don't like letting their competitors know what they're doing with e.l.f. In terms of new items, that clearly has been one of the big drivers of our success. So if I think it's Poreless Putty Primer, 16HR Camo Concealer as well as some of the new items I just mentioned, they really do fuel consumer interest as we uniquely can bring those types of items to the market at our accessible price points. And so we already have talked with our retail customers in terms of what items they'll be accepting. Unicorn is a great enabler because it helped us pick up kind of that space and that efficiency by which we have confidence that we can get a number of those new items into the spring resets, and as part of Phase 3, highlight and present them even better than we do right now. So I feel good about our pipeline and the number of new items that we have coming.

Our next question comes from the line of Linda Bolton-Weiser with D.A. Davidson. Linda Bolton-Weiser: I was curious if you could just comment on the Phase 2 of the Project Unicorn, which, I believe, has to do with your brushes. And also, related to that, in examining some of the IRI data, it does look like some of the bigger volume declines were in the area, perhaps, of brushes and accessories and tools, things like that. Are you going to be making any further pricing adjustments, so that you can increase the effectiveness of the overall pricing strategy? Or are you quite satisfied with the way things are now?

Linda, so I'd say Phase 2 of Unicorn is now complete, which did include all of our brushes. And a big part of that initiative was an insight we have that single brushes were facing greater headwinds since, I would say, where the consumer is migrating to, which is brush kits as well as sponges. And so what Phase 2 of Unicorn allowed us to do is actually fit in a few more of our brush kits where we can have incredible brushes at this extraordinary value every day as well as our total face sponge, which is picking up quite a bit of share in the sponge category, which happens to be quite fast growing. So as I step back and take a look at overall tools, accessories, we look at brushes, we look at some of our other tools, and we look at sponges. And when you mix those in, we're pleased with what we saw from Phase 2.

And then on the pricing question there, Linda. So brushes, as you probably can see through the data, the AUR is higher, and so they were impacted by pricing. But as to my earlier comments on wanting to see the longer-term impact on pricing, that is why we're kind of taking this balanced approach to make sure that we understand how each item is impacted by pricing. But to Tarang's point, we were pleased with what we see thus far.

Our next question comes from the line of Rupesh Parikh with Oppenheimer & Co.

So to start, a housekeeping question for Mandy. So just curious if you have an updated gross margin expectation for the full year.

So I would say, for the back half of the year, you have what the front half actualized debt. So for the back half of the year, I would continue to use the 60% margin that I have quoted all year long. That is kind of the run rate margin, excluding stores that you should continue to use as we go throughout the rest of fiscal 2020.

Okay. So it was essentially unchanged from your prior forecast?

Correct. Yes.

Okay. Okay. And a question for Tarang. So skin care, another quarter of strong growth. I was curious if you can just give some more color in terms of what's contributing to that growth and whether you're seeing more retailer interest in your skin care offering.

Yes, we're really pleased with skin care. As a reminder, we entered skin care about 3 years ago relative to the almost 16-year history, having color cosmetics. You have the same model holds in skin care where we can bring the best of skin care and make it accessible to our consumers. So what's driving skin care this year really is a continuation of the innovation we have on skin care. Our Hello Hydration! skin care cream has done extremely well as has the rest of kind of the lineup. And that's what you're seeing and what I quoted, which is the tracked data in Nielsen with skin care for the quarter being up 39%. In addition to the tracked channel data, Target is a huge driver of skin care for us. You also have nontracked skin care. I'm not going to give the numbers, but Ulta did take skin care full chain this year. So it's our second year of Ulta. They expanded color cosmetics in all doors last year. They've now expanded skin care in all doors this year, and we're seeing great traction there as well.

Our next question comes from the line of Jon Anderson with William Blair.

Tarang, you mentioned international in the prepared comments. I'm wondering if you could talk a little bit more about the overall kind of trends or growth rates you're seeing in your international business and opportunities for additional distribution expansion.

Absolutely, Jon. I would say our international business has similar trends to the rest of our business in terms of the breadth of the growth that we're seeing. International is no different. In particular, I would point out the U.K., which has been our biggest focus, last year, as I mentioned, we had done full chain at Superdrug. It's good business at Superdrug. This year, Boots is starting to expand out the brand. In both customers, we're seeing very strong growth, in addition to our e.l.f. cosmetics site in the U.K. So it's a good indication of our strategy on international, which is -- it's not a big bang strategy. You're never going to hear us talk about entering 30 countries at the same time. It's really the same disciplined rollout that we had kind of in the U.S. when we went from 1 customer, really make sure we had a good foundation there and then went to another. I'd say the same thing is true on international. You'll see continued focus in the U.K. We've previously mentioned, we are testing the brand in Germany and some other key markets and are quite keen on our China e-commerce effort as well. So look forward to continue to provide updates, but it will be this disciplined rollout that we'll use internationally. And part of it is we have such a big opportunity remaining in the U.S. with the white space we have here with space and customers.

That's helpful. Just pivoting back to skin care for a minute. Could you describe your kind of ACV or distribution in skin care relative to your distribution domestically in color cosmetics and -- just to kind of get a sense of the opportunity there. And then, are you happy with how your skin care products are being merchandised at retail? Are they co-located with your color cosmetics? Are they in different aisles? And is there opportunity for enhancement there?

Yes. We have major white space when it comes to skin care from a distribution standpoint. We're not distributed nearly as broadly as we are with color cosmetics nor with the same type of footprint. I'd say the 2 primary customers we have from a national retailer standpoint, in addition to e.l.f. cosmetics.com, which you can find our entire skin care range on, are really Target, which really led skin care with us and Ulta Beauty. And at Target, where we do have larger shelf sets, skin care is co-located with our overall cosmetics session. We prefer that type of location where a consumer who's looking for e.l.f. can go across the entire regimen, really tying into the inside if you need good skin, to have good makeup coverage, and Target really does lead our skin care business given that co-location. Ulta Beauty decided to put skin care in a separate area, actually, in their skin care set. We originally -- I don't think we're crazy about the idea. But they tested it. It did so well that we decided to take it full chain. So we have examples of both areas. Our preference, I think, would be to locate it, if we have enough space within our main set. And you'll see us continue to expand the distribution on skin care, given how well it's done at both Target and Ulta.

Excellent. I'm going to squeeze 1 more in quickly. Could you give us an update on the in-house production effort timing there and if there are anything to consider in terms of that changing kind of your margin -- the margin profile of the business over time?

Sure. So we have two main initiatives when it comes to our operations in the U.S. The first was automation, both automating our e-commerce line in Columbus, Ohio as well as one of our main lines in Ontario, California. Those automation efforts are now mainly complete, and we're reaping the benefits of that from a cost saving standpoint as well as efficiency and our ability to reach consumers faster. The second major initiative is building a plant in Southern California, not that far from our distribution center. That plant should be operational by the end of our fiscal year. And importantly, we need plans for that plant well before tariffs. It really was, if we're going to automate certain aspects of our operation, think of liquid fill in a bottle, it made sense to put that automation here in the United States near our distribution center, both from a speed advantage as well as cost. Certainly, that plant is looking even better in a tariff environment where there are additional savings associated, depending on what happens with tariffs. So I'd say, well on track on both those initiatives. The last thing I will tell you is the majority of our manufacturing will continue to be in China where we have a major advantage on the combination of cost, quality and speed. And so we take a global view when it comes to overall supply chain and like the progress we're making on the initiatives, including the progress we're making with lean in China.

Our final question comes from the line of Mark Astrachan with Stifel.

I guess, one, just a follow-up on the last line of questioning. Given the strength of the business at this point, maybe some sort of thoughts on cash use beyond the facility you're talking about. CapEx doesn't seem to be that elevated. So you're in a fairly good position at this point leverage-wise, so maybe talk a bit about what you can do there. And then more broadly, just innovation, you touched on it before. It's been a huge driver of growth in the business. I guess I'm curious, given how successful it's been, has it surprised you, and to the extent that it's driven growth? If so, kind of what were the takeaways from it? And how do you think about the ability to lap that? Meaning without giving us details of what's coming, what do you think about in terms of opportunities on a go-forward basis?

Yes. So I'll take the first one, Mark, on the cash use. So we really feel great about our cash position right now. We are able to fund our strategic imperatives, and we've talked about potentially pursuing strategic extensions over time. So I think when you are thinking about our cash use, those would be the areas that we would focus on. You've also seen us do modest repurchases, which you've seen in the last 2 quarters, and we'll continue to blend that in as it makes sense in the context of those strategic objectives.

And then on your question on innovation, that has been a critical driver of our business for a very long time. I think one of our realizations last year when the business slowed was we had great innovation, but it was getting lost in all the other noise of the marketplace. So 1 of our key imperatives in stepping up our marketing activation spend in digital was really making sure we're putting enough emphasis on those items that most matter. So I think the biggest pivot we had is we still innovate with the products that consumers want at e.l.f. speed. The biggest pivot, though, was really making sure we're shining a light on those innovations that the consumer is particularly interested in. That was very much the case with Poreless Putty Primer and Camo Concealer. And I would say they still have a lot of life left in them. If you think about the very beginning of this year, we were supply-constrained on both those items. As we continue to activate, as customers get behind them, we continue to see them do quite well. Some of the more recent innovations I discussed on the call today also have quite a bit of room. And I'm really excited about the pipeline we have coming forward. So probably, the biggest opportunity, I would say, on innovation is beyond our proven capability of bringing the best of beauty and making it accessible for every eye, lip and face, is continuing to amplify those innovations and goes hand in hand with our shelf initiative with Project Unicorn where we can better highlight what are those innovations that we believe will be most important to consumers.

We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Amin for any closing remarks.

Great. Well, thank you, everyone, for joining us. Over the next month or so, a number of members of our team are going to be investing -- attending investor events in San Francisco, New York and London. We hope to see you there. Thanks, everyone.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.