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E.l.f. Posts Improvement After Implementing Project Unicorn

The business posted a loss because of a restructuring charge related to store closures.

Things are looking up at E.l.f. Beauty.

The mass-market brand had struggled with eroding sales and shelf-space productivity, but in its most recent quarter, posted improvements. The company credited its packaging and shelf merchandising initiative, Project Unicorn, with the progress.

“It’s a little perplexing how long the softness has been there,” said E.l.f. chief executive officer Tarang Amin. “We’re a little surprised by how long the category has been soft. The core dimensions of the category always come back to how strong in totality are the products there. We’re really encouraged that we have a couple of what look to be pretty big hitters. I don’t know if the category in total has that level of innovation that we have.”

In the past few months, E.l.f. has increased marketing around products like its Putty Primer and Camo Concealer, which have become successful.

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“[We assumed] somehow consumers would figure out what are the ones that are to die for,” Amin continued, noting that without direction, it’s possible consumers wouldn’t know which products are the gems in the lineup. “That amplification we believe helps, and we think it’ll help the category, too.”

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E.l.f. will also spend more time talking about hero items. “You’ll hear us talk less about the total [number of] items we’re launching,” Amin told Wall Street analysts. He later clarified to WWD, “the part that’s changing is really putting more focus against the biggest hitters.”

The company is diversifying its marketing efforts and ramping up spend to between 10 and 12 percent. Before, E.l.f.’s digital marketing spend was mostly on Instagram, Amin said, but now it will be more diversified. “We weren’t doing that much on many of the other platforms, so part of it is broadening the reach [to platforms like Facebook and TikTok],” he said.

For the quarter, net sales were up by $200,000 over the prior-year period, to $66.1 million, due to increases in shelf space at existing retailers and new distribution. Those figures were offset by the closure of 22 E.l.f. stores in February. Net loss was $17.9 million, with a net loss per share of 37 cents.

Excluding the impact of closing the stores, which the company estimates to be $22.2 million, sales in the quarter were up 3 percent.

E.l.f. has been working to fit more products onto shelves at retailers like Target and Ulta Beauty, and market around key franchises like primer and brows, for the first phase of Project Unicorn. In the second, which is expected to roll out later this year, the business will redesign outer packaging for its brushes in order to fit more of them on shelves, Amin said. “We have this high share of brushes, yet there’s a lot of packaging that goes with it. They’re pretty wide, so getting to a thinner footprint or profile will allow us to put more of our brush innovation on shelves,” he said.

Phase three of Project Unicorn, slated for spring 2020, will address E.l.f.’s “biggest value statements.” Amin noted he probably will never stop talking about Project Unicorn. “Unicorn, for us, is really the code name by which we look at packaging and shelf presentation. I don’t see an end to that.”

For fiscal 2020, E.l.f. is predicting net sales of between $235 million and $245 million, with adjusted net income of between $18 million and $21 million.

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