How Gen Z Is Reviving Legacy Brands (YouTube Video Transcript)

(00:00:00) Your YouTube transcript will appear here (00:00:00) Coach is back. (00:00:01) >> Fashion always looks to the youngest (00:00:03) generation for inspiration and then (00:00:05) every other generation follows. [music] (00:00:07) So we knew if we could win with the (00:00:09) timeless Gen Z, we can win with (00:00:11) everyone. (00:00:11) >> And in 2024, Coach surpassed Michael (00:00:14) Kors to capture second place in the US (00:00:16) luxury handbag market. It was named the (00:00:18) fifth hottest fashion brand in fourth (00:00:20) quarter 2025, climbing 10 spots from its (00:00:23) previous ranking. Cosmetics company (00:00:25) E.L.F. beauty has won over makeup lovers (00:00:28) from all over with its low prices, great (00:00:30) dupes, and viral marketing. (00:00:32) >> Are we even surprised at this point? (00:00:34) E.L.F. is always killing it. This (00:00:36) product is so good and it is so (00:00:37) affordable. (00:00:38) >> Americans are picking knockoffs as they (00:00:40) prioritize price and value, especially (00:00:42) Gen Alpha, Gen Z, and millennial (00:00:45) consumers who have made E.L.F. their (00:00:46) most purchased cosmetic brand. According (00:00:48) to the company, (00:00:49) >> apparently Gap is a new Aritzia, so of (00:00:51) course I had to go check it out myself. (00:00:53) We're actually hearing that GAP is kind (00:00:56) of cool again, and we haven't heard that (00:00:58) for the greater part of 20 years. (00:01:00) >> It has excited Wall Street. It's (00:01:02) exciting customers. This isn't a total (00:01:05) turnaround just yet, but we're (00:01:07) witnessing the very early endings of a (00:01:09) huge renaissance for one of America's (00:01:11) most iconic House of Brands. (00:01:16) [music] (00:01:26) Coach purses were a staple in the early (00:01:28) 2000s, worn by teens at the mall and (00:01:31) celebrities on the red carpet. The (00:01:33) monogram design with a double C logo was (00:01:36) everywhere. But by the 2010s, the brand (00:01:39) fell out of favor. Its luxury reputation (00:01:41) suffered and sales plummeted. The (00:01:44) company wiped out about 60% from its (00:01:46) market cap between its 2012 peak to mid (00:01:49) 2014. But Coach is back. (00:01:52) >> The girls came through. Coach is back. (00:01:54) >> Mainly among Jenzi consumers who are (00:01:56) driving a lot of its growth. (00:01:58) >> Fashion always looks to the youngest (00:01:59) generation for inspiration and then (00:02:02) every other generation follows. So we (00:02:04) knew if we could win with the timeless (00:02:07) Gen Z, we can win with everyone. And in (00:02:10) 2024, Coach surpassed Michael Kors to (00:02:13) capture second place in the US luxury (00:02:15) handbag market. It was named the fifth (00:02:17) hottest fashion brand in fourth quarter (00:02:19) 2025, climbing 10 spots from its (00:02:22) previous ranking. In this sector, it's (00:02:24) really rare to take a kind of mediocre (00:02:26) [music] mall brand that has been (00:02:28) tarnished and then elevate it to be a (00:02:31) credible luxury contender. That is very, (00:02:34) very rare. (00:02:44) >> [music] (00:02:50) >> Coach was founded as a men's leather (00:02:51) goods business in 1941. (00:02:53) >> It was inspired by a baseball glove. (00:02:56) Over time, a baseball glove's patina is (00:03:01) [music] enhanced. It gets better over (00:03:02) age. And that's why today you see 10, (00:03:05) 20, 30 year old Coach bags, [music] but (00:03:08) across the globe still having that (00:03:10) beautiful sustained patina. (00:03:14) In the decades that followed, the brand (00:03:16) transformed into a woman's fashion (00:03:17) house, opening its flagship store on (00:03:20) Madison Avenue in 1981 and then (00:03:22) boutiques in Macy's department stores (00:03:24) across the country. The brand (00:03:26) distinguished itself as accessible (00:03:28) luxury, high craftsmanship at affordable (00:03:30) prices. In the late 90s to early 2000s, (00:03:34) its iconic logo covered bags became an (00:03:37) ITG girl item. (00:03:40) But as logo mania fell out of favor, (00:03:42) Coach suffered. Its heavy discounting (00:03:45) and overpresence in outlet malls [music] (00:03:48) cheapened its reputation. Consumers (00:03:50) traded the brand for competitors Tory (00:03:52) Burch, Michael Kors, and Kate Spade. it (00:03:55) kind of had lost some of its cache and (00:03:58) you know the the the brand [music] had (00:04:00) kind of almost been diluted in terms of (00:04:02) its heritage and the value of the (00:04:04) products. (00:04:05) >> Between January 2012 and January 2015, (00:04:08) Coach Shares lost 40% of their value. (00:04:11) [music] (00:04:11) >> There was a time when you'd walk in the (00:04:13) store and you were just handed a 20% off (00:04:15) coupon and that was a sitewide or a (00:04:17) [music] storewide discount and over time (00:04:20) that drags down the brand equity of the (00:04:21) brand overall. (00:04:28) By 2013, the company recognized the need (00:04:31) to course correct. Nearly all of its (00:04:34) North American sales are direct to (00:04:36) consumer. So, Coach had great access to (00:04:38) [music] long-term data. The company (00:04:40) hired a new executive creative director, (00:04:42) Stuart Beavers, who came from high (00:04:44) fashion brands Malberry and Louis (00:04:46) [music] (00:04:47) to introduce a more youthful aesthetic. (00:04:49) He shifted Coach away from the heavy (00:04:50) logo designs. The company also closed (00:04:53) underperforming stores and moved away (00:04:55) [music] from discounting. (00:04:56) >> They, you know, pulled everything back, (00:04:58) went completely back to the drawing (00:05:00) board and thought, okay, what do we (00:05:02) really need to do? [music] And had a (00:05:04) very clear plan and message. [music] (00:05:07) They also, you know, looked at their (00:05:09) products and realized, yes, we need to (00:05:11) scale back. We need to focus on the (00:05:13) quality. (00:05:15) The company also made several (00:05:16) acquisitions. (00:05:17) >> [music] (00:05:17) >> It bought designer footwear company (00:05:19) Steuart Whitesman for $574 million in (00:05:23) 2015 and former rival Kate Spade in 2017 (00:05:27) for $2.4 billion. [music] That October, (00:05:30) it renamed its holding company Coach (00:05:32) Incorporated to Tapestry. [music] (00:05:34) >> It wasn't so much a light switch as it (00:05:37) was building on little bit of success to (00:05:40) success to success. We focused on fewer (00:05:43) ideas both in product and storytelling. (00:05:46) We became very focused on this timeless (00:05:48) Gen Z client globally. We stopped (00:05:51) telling ourselves some stories that (00:05:53) businesses tell themselves [music] (00:05:54) that every business unit, every market (00:05:57) is a snowflake. I think those (00:05:59) underpinnings and those principles (00:06:01) coupled with culture make a huge (00:06:04) difference. (00:06:05) In 2021, longtime Tapestry executive (00:06:09) Todd [music] Khan took the helm as CEO (00:06:11) and president of Coach. The brand's (00:06:13) sales grew 16% that year and 15% from (00:06:17) prepandemic levels. [music] (00:06:19) 74% of Tapestry's revenue that year came (00:06:22) from Coach. Over the last 5 years, (00:06:24) Tapestry's market cap has expanded by (00:06:26) about 140%. [music] (00:06:29) Bags like the Brooklyn, Rogue, and Tabby (00:06:32) became bestsellers in part because of (00:06:33) powerful social media campaigns with (00:06:36) influencers and celebrities like Megan (00:06:38) the Stallion and Lil Naz X. As Y2K (00:06:41) fashion came back in style, Coach seized (00:06:44) on the moment by leveraging nostalgia, (00:06:46) it rebranded older pieces for a new (00:06:48) audience and re-released classic designs (00:06:51) and launched bags at different price (00:06:53) points to meet demand for every budget. (00:06:55) [music] (00:06:55) >> Should somebody have to save three or (00:06:56) four months of salary to buy a handbag? (00:06:59) Is that really the world we think is (00:07:02) great? I love the fact that you don't (00:07:04) have to do that for Coach and you don't (00:07:06) have to do that across the globe. (00:07:08) [music] So that's part of our success. (00:07:12) >> Coach has also benefited from Gen Z's (00:07:14) love for customization. Its brooes and (00:07:16) bag charms have been hits. [music] (00:07:18) It's also been experimenting with intore (00:07:20) experiences. It launched immersive (00:07:22) concept stores called Coach Play [music] (00:07:24) to help boost Gen Z visits and Coach (00:07:27) coffee shops. (00:07:30) Coach's revenue grew 15% in Q3 2025 (00:07:33) compared to the same quarter a year (00:07:35) prior. (00:07:35) >> [music] (00:07:36) >> It also outperformed the industry in (00:07:38) Europe and China and achieved a 77.1% (00:07:41) gross margin. More than 2/3 of its (00:07:43) nearly 900,000 new customers in North (00:07:46) America were Gen Z and millennials. The (00:07:48) Brooklyn bag was named the hottest (00:07:50) product of Q4 2024 by global shopping (00:07:53) platform List. Demand for its products (00:07:55) overall was up 332% year-over-year. (00:07:59) Coach's sales grew double digits two (00:08:01) quarters [music] in a row. Well, for (00:08:02) example, LVMH, the owner of several (00:08:05) luxury brands, witnessed declining (00:08:07) sales, and the share price of the two (00:08:10) companies reflects this difference, too. (00:08:12) You're seeing a very clear market share (00:08:14) shift where those brands are declining, (00:08:16) and they're particularly calling out the (00:08:18) affordable [music] luxury consumer. They (00:08:20) have said repeatedly that they have not (00:08:21) seen any deceleration in the trend year (00:08:24) to date in 2025, [music] (00:08:25) which is quite surprising given the (00:08:28) environment we're in where the consumer (00:08:29) is being more cautious. (00:08:35) Coach generates about 60% of its sales (00:08:37) in North America, but its international (00:08:40) appeal is growing, especially in Asia. (00:08:42) It currently has nearly a thousand (00:08:44) stores in 21 countries. Coach is also (00:08:47) exposed to some risk. With the rise of (00:08:50) social media, small upand cominging (00:08:52) direct to consumer brands are (00:08:54) encroaching on its territory. (00:08:56) Looming tariffs could also impact the (00:08:58) brand. More than half of Tapestry's (00:09:01) goods are manufactured in Asia. Planned (00:09:04) reciprocal tariffs on those imports are (00:09:06) as high as 49%. Yet, its supply chain is (00:09:09) diversified with no single supplier (00:09:11) accounting for more than 10% of (00:09:13) production. It has limited its exposure (00:09:16) to China. (00:09:17) >> Based on what we know today, we will be (00:09:19) fine. We have relationships for 20, 30 (00:09:22) years with our [music] suppliers. We (00:09:25) really are involved in every aspect of (00:09:27) the process that helps us navigate these (00:09:30) [music] kind of issues. (00:09:33) >> Long-term, Coach could diversify its (00:09:35) offerings to compete with peers. Women's (00:09:38) handbags and other accessories account (00:09:40) for about 70% of its sales. I think (00:09:42) sometimes brands go too quickly into (00:09:45) line extensions and category expansion. (00:09:47) And what ends up happening is they go (00:09:49) into lower margin categories that are (00:09:51) maybe have more fashion risk, more (00:09:52) obsolescence risk. And so they end up (00:09:54) actually [music] diluting the equity of (00:09:56) the brand by doing too many things all (00:09:58) at once. So I I like that coach is being (00:10:01) slow and measured with this. (00:10:02) >> We see so much opportunity and we see (00:10:04) that [music] just on the demographics. (00:10:06) If you think about next year and for the (00:10:09) next five years, there will be 25 (00:10:11) million women [music] who turn 18 (00:10:14) globally who can in the markets that we (00:10:16) play who can afford over a $100 handbag. (00:10:19) [music] (00:10:20) When you just think about that (00:10:22) opportunity to bring them into the coach (00:10:24) vote to have that first bag be a [music] (00:10:26) Coach bag, that's tremendous growth. So, (00:10:29) I don't necessarily need to [music] (00:10:32) be great in everything. We like to be (00:10:34) great in everything, but we [music] (00:10:35) really need to be great in our core (00:10:37) categories. (00:10:41) [music] (00:10:46) [music] (00:10:53) For decades, the Gap defined American (00:10:56) fashion. (00:10:59) But Gap fell out of vogue (00:11:02) not too long after its white denim (00:11:04) graced the cover of the namesake (00:11:06) magazine. Since 2001, the brand has (00:11:08) shuttered nearly 2500 stores and the (00:11:11) stock of its parent company Gap Inc. (00:11:13) significantly underperformed the S&P 500 (00:11:17) and competitors like Aboci and American (00:11:19) Eagle. But the company is trying to turn (00:11:22) things around. It's back in the cultural (00:11:25) conversation with splashy marketing (00:11:27) campaigns and hiring high-end fashion (00:11:30) designer Zack Posen as its creative (00:11:32) director. We did some heavy lifting to (00:11:35) build a foundation. Now we're driving (00:11:39) really interesting creative on top of (00:11:42) that foundation and building relevance (00:11:45) for the brand. And Gen Z is taking (00:11:47) notice, too. (00:11:48) >> Apparently, Gap is a new Aritzia. So, of (00:11:50) course, I had to go check it out myself. (00:11:52) We're actually hearing that GAP is kind (00:11:54) of cool again and we haven't heard that (00:11:57) for the greater part of 20 years. (00:11:59) >> It has excited Wall Street. It's (00:12:01) exciting customers. This isn't a total (00:12:04) turnaround just yet, but we're (00:12:06) witnessing the very early endings of a (00:12:08) huge renaissance for one of America's (00:12:10) most iconic house of brands. (00:12:12) >> So, how is GAP trying to reinvent (00:12:14) itself? And can it prove to investors (00:12:16) that this turnaround isn't just a (00:12:18) passing fad? (00:12:23) Gap had 25 stores in 1972. After going (00:12:27) public a few years later, its growth (00:12:29) soared. By 1999, the brand had over 2100 (00:12:32) stores across the world. It was just a (00:12:34) few years later that things started to (00:12:36) go downhill. (00:12:38) >> By the end of the '9s and into the (00:12:40) 2000s, a lot of these other retailers (00:12:43) were starting [music] to encroach upon (00:12:44) Gap's strength and the singular kind of (00:12:47) position that they had had at that time. (00:12:48) The barriers to entry are low. Malls are (00:12:51) growing very, very fast. They're looking (00:12:53) for new entrance. And you know, frankly, (00:12:55) there were a lot of players and new (00:12:57) entrance, you know, cheap fast fashion (00:12:58) came about. After its stock price soared (00:13:01) in the 1990s, there was a flash of (00:13:03) resurgence in 2012 as the company (00:13:06) benefited from the skinny jean craze, (00:13:09) excitement around international (00:13:10) expansion, and investor bullishness for (00:13:13) athleisure brand Athleta, which was (00:13:15) acquired a few years prior. But that (00:13:17) momentum was halted in 2014 after the (00:13:20) roll out of an unsuccessful campaign (00:13:22) called Dress Normal. It sent sales and (00:13:25) the stock price falling yet again. (00:13:27) >> If the definition of kind of what you (00:13:29) stand for is sort of democratic (00:13:31) all-American, it's very nebulous. A (00:13:34) thousand people can come up with a (00:13:35) thousand ideas what that means to them. (00:13:37) And so what you end up on the other side (00:13:39) of that through the entire process, (00:13:41) design, merchandising, visual (00:13:42) merchandising [music] is kind of a a (00:13:45) message that's very very diluted. (00:13:46) >> For much of the early 2000s, Gap and its (00:13:49) sister company, Old Navy, had been (00:13:50) generating similar sales. But over the (00:13:53) past decade, Old Navy has become the (00:13:55) powerhouse of the company as Gap fell (00:13:58) out of favor with consumers, forcing (00:14:00) store closures and sales falling by (00:14:02) nearly $3 billion. (00:14:05) For many years, GAP has had to rely on (00:14:07) promotions and discounts to move (00:14:09) product. They make stuff people don't (00:14:10) want. They're not doing the right (00:14:12) marketing, and so they just discount it (00:14:13) into oblivion to be able to actually (00:14:15) move product. That's going to have a (00:14:16) huge impact on your margins. It also had (00:14:18) become a bloated corporate company, (00:14:20) right? And so they've spent a lot of (00:14:21) years doing a lot of layoffs, (00:14:23) restructuring the business. (00:14:24) >> Those challenges were felt across the (00:14:26) portfolio, including at its namesake (00:14:28) brand. (00:14:29) >> We consolidated our SKUs. We (00:14:31) rationalized styles, improved quality (00:14:34) dramatically. So all of those things uh (00:14:38) including some things like reducing (00:14:39) costs uh which are key to making a (00:14:41) business healthy but not fun. Those were (00:14:44) setting up a foundation for us to layer (00:14:47) on a a creative renaissance really for (00:14:50) the brand. After putting in work to (00:14:53) write the balance sheet, the cultural (00:14:55) revival of GAP began in 2023. It (00:14:57) coincided with Richard Dixon taking the (00:14:59) helm as CEO. He came from Mattel and is (00:15:02) largely credited for the revival of the (00:15:04) Barbie brand. (00:15:06) >> We're going to continue to operate with (00:15:07) discipline against strategic priorities, (00:15:10) operational and financial rigor, and (00:15:11) that's what's going to enable us to (00:15:13) really reinvigorate this incredible (00:15:15) portfolio. (00:15:16) >> And I think that helps you get someone (00:15:17) like Zack Posen. (00:15:19) >> Longtime fashion designer Zach Posen (00:15:21) joined as EVP and creative director of (00:15:23) Gap, Inc. in February 2024. Posen's main (00:15:26) focus is on Old Navy where he leads the (00:15:29) design and merchandising for the brand. (00:15:31) >> Old Navy is the most important part of (00:15:33) Gap Inc. It's the largest revenue (00:15:34) driver. If Old Navy has a bad day, then (00:15:36) it can drag down the entire business. (00:15:38) Richard is a marketing guru. You know, (00:15:40) marketing is one way to bring back (00:15:43) relevancy and a one way to generate (00:15:44) sales, but you're not going to have (00:15:46) sustainable sales if you don't have (00:15:47) great product. And that's where Zach has (00:15:49) come in. having Zach in the building to (00:15:51) help attract creative talent, be a brand (00:15:53) ambassador, [music] do actual design and (00:15:55) access red carpet in a way we've never (00:15:58) had access to or Launch Gap Studio. (00:16:00) That's all been a layer on that the (00:16:02) brands needed for for energy. The (00:16:04) company has leaned into viral celebrity (00:16:07) advertising campaigns. South African (00:16:09) singer songwriter Tyler [music] or (00:16:12) Australian pop star Troy Savon dancing (00:16:14) in baggy jeans for its denim collection. (00:16:16) We've been in a denim cycle probably for (00:16:19) the greater part of you know on the four (00:16:22) to five years which is right in their (00:16:24) wheelhouse. It started during co and (00:16:26) it's kind of you know that kind of wider (00:16:28) baggier leg denim. They actually (00:16:30) executed it flawlessly. (00:16:33) >> When these things are working well we're (00:16:35) getting so much social media attention (00:16:38) that just from consumers that are (00:16:40) reposting that are excited that are (00:16:42) doing the dance themselves. [music] (00:16:43) That's where a little bit of this magic (00:16:45) energy starts to develop. (00:16:48) >> The company says it's trying to move (00:16:49) with the speed of culture. That can be (00:16:51) seen firsthand with its recent Parker (00:16:53) Posie advertising campaign. The actress (00:16:55) saw a resurgence in fame this year after (00:16:57) starring in the White Lotus. And now she (00:17:00) can be seen right above the Gap in Time (00:17:02) Square. The company also told CNBC that (00:17:04) it plans to renovate about 40 of its top (00:17:06) stores, but has not shared a timeline (00:17:08) for how long that will take. When you go (00:17:10) into stores, you see better lighting, (00:17:13) some better refresh for the experience. (00:17:16) It's also omni, so online, we have (00:17:19) improved the experience with video (00:17:22) lookbooks, [music] (00:17:23) uh, better shots uh of photography so (00:17:26) that we can do a better job of selling (00:17:28) the product and having a customer see (00:17:30) how a style is really going to look on (00:17:32) them. What's interesting about this (00:17:34) partnership is that some of the custom (00:17:36) red carpet looks that Posen designed for (00:17:38) actors like Timothy Shalamé or Anne (00:17:41) Hathaway are actually being sold through (00:17:43) its designer line called Gap Studio. (00:17:45) >> People are talking about Gap again. You (00:17:48) look on social media, people are saying (00:17:49) this brand is on a comeback. Richard has (00:17:51) focused on Gap. That's where the (00:17:54) turnaround is really focused at the (00:17:55) moment. But when you are a corporation (00:17:58) with four brands, you got to think (00:18:00) bigger than just one brand. (00:18:02) While Gap and Old Navy's same store (00:18:05) sales, meaning sales at its existing (00:18:07) locations, have been mostly positive for (00:18:09) the past six quarters, Banana Republic (00:18:11) and Athleta have been far more (00:18:13) inconsistent. (00:18:15) >> One of the long-term challenges they've (00:18:16) had at Athleta is product acceptance (00:18:19) challenges, which is a nice way of (00:18:21) saying they made clothes that people (00:18:22) don't like. The focus hasn't been as (00:18:25) much on Banana and Athleta because (00:18:27) Turning around Gap and Old Navy are (00:18:29) momentous tasks all by themselves. So (00:18:31) there's still more work to be done at (00:18:32) lean. (00:18:33) >> Between 2023 and 2024, GAP Inc.'s (00:18:36) overall sales grew by about 1% primarily (00:18:39) driven by growth at Old Navy. (00:18:42) >> 15 billion isn't that high compared to I (00:18:45) mean it was well over 16 even 10 years (00:18:47) ago. So is that good? (00:18:49) >> The way you should look at it now is on (00:18:52) that 1% they are growing that 1% on the (00:18:56) highest gross margins that they have had (00:18:58) in the past 20 years. When you finally (00:19:00) do grow sales, you want to grow it in an (00:19:03) extraordinarily high profit generating (00:19:05) and healthy manner. (00:19:07) >> But there are still challenges ahead. (00:19:08) This isn't the first time that GAP has (00:19:10) attempted a turnaround. Its short-lived (00:19:12) revival in 2013, for one, this time (00:19:15) around, the company needs to prove it (00:19:16) can sustain this momentum long term. And (00:19:19) it's not helping that this is a (00:19:20) particularly challenging time for (00:19:22) apparel retailers who rely on (00:19:24) manufacturing overseas. GAP beat Wall (00:19:27) Street's earnings expectations in its (00:19:29) fiscal first quarter of 2025, but that (00:19:32) was overshadowed by other news that (00:19:33) spooked investors. (00:19:35) We're going to start with the GAP right (00:19:36) now. Shares are plunging, earnings and (00:19:39) revenue beat estimates, but the company (00:19:40) warning that new tariffs could impact (00:19:42) its business by 100 to $150 million. (00:19:45) >> Looking at a 2-year stock chart, the (00:19:47) company was up about 200% at the end of (00:19:49) May. The news surrounding the potential (00:19:52) implication of tariffs has since sent (00:19:54) the share price tumbling. We've already (00:19:56) mitigated over half of the anticipated (00:19:58) impact of tariffs. We've done it through (00:20:00) adjustments in sourcing, manufacturing (00:20:03) assortments, and we remain absolutely (00:20:06) committed to achieving additional (00:20:08) mitigation over time. (00:20:10) >> A company like Gap that sells clothes, (00:20:12) things that we like to have, but we (00:20:14) probably have enough in our closet to (00:20:16) get us through a tough economic time. (00:20:18) This poses a huge challenge for them. (00:20:20) They also have a very diversified supply (00:20:23) chain, but a lot of that supply chain is (00:20:25) in Asia. And if President Donald Trump's (00:20:27) reciprocal tariffs remain in effect for (00:20:29) those countries, could have a huge (00:20:31) impact on their margins. It could have a (00:20:32) huge impact on their price. (00:20:34) >> When I see the sort of [music] (00:20:36) foundation we've built, the creative (00:20:38) energy we've created with the results (00:20:40) we're driving now, that [music] needs to (00:20:43) be what our focus is on. (00:20:57) Cosmetics company E.L.F. Beauty has won (00:20:59) over makeup lovers from all over with (00:21:01) its low prices, great dupes, and viral (00:21:04) marketing. (00:21:05) >> Are we even surprised at this point? (00:21:06) E.L.F. is always killing it. (00:21:07) >> This product is so good, and it is so (00:21:09) affordable. E.L.F. just dropped all (00:21:11) these new dupes. We have to try them (00:21:13) out. [music] (00:21:15) >> It's cool. It's hot. It doesn't matter (00:21:17) if it's cheap [music] or if it's a dupe. (00:21:19) They've kind of transcended that. (00:21:21) >> E.L.F. is now challenging legacy players (00:21:23) like Esteee Lauder. And in May 2025, it (00:21:25) announced it was acquiring Haley Bieber (00:21:27) skincare brand in a $1 billion deal. (00:21:30) >> Road was founded in 2022. $1 billion and (00:21:34) founded 3 years ago. (00:21:35) >> Shares popped more than 25% the next (00:21:38) day. (00:21:38) >> I thought the reason why things were so (00:21:40) great was cuz the numbers were great. (00:21:42) It's this acquisition that you made (00:21:44) which everybody seemed to know as being (00:21:46) the right thing at the right time. (00:21:48) >> ELF's stock has been volatile over the (00:21:50) past 3 years, but the company posted its (00:21:53) first billion dollar year in May 2024 (00:21:55) after sales spiked 77%. (00:21:58) >> Last 3 years, our stock is up over 200%. (00:22:01) So, we continue to be able to prove (00:22:03) people wrong and part of that has to do (00:22:05) with our ability to execute and the (00:22:07) strong growth that we drive and we have (00:22:08) incredible white space ahead of us. It (00:22:10) really is in a league of its own and we (00:22:12) do view ELF as a best-in-class executor. (00:22:16) And while the company reported its 26th (00:22:18) straight quarter of net sales growth in (00:22:20) its Q1 2026 earnings on August 6th, (00:22:23) 2025, it faces some challenges ahead. A (00:22:26) weary Wall Street that believes the (00:22:27) company could be peaking. Its stock fell (00:22:29) more than 10% on August 7th. Its heavy (00:22:32) reliance on China caused profits to drop (00:22:34) 30% in that first quarter. And it has a (00:22:36) heavy debt load from its road deal. (00:22:38) That's the reason for the swing, right? (00:22:40) Is I think they could feel a bit of the (00:22:41) slip. They'd gotten there and had done a (00:22:43) really nice job and then felt these (00:22:44) headwinds. And if you were to ask me, (00:22:46) are they going to be bigger or smaller (00:22:47) in 5 years? I would guess bigger. (00:22:49) >> So, how did it get here? And will its $1 (00:22:51) billion bet on a mere three-year-old (00:22:54) viral celebrity makeup brand pay off? (00:23:07) E.L.F. which stands for eyes, lips, (00:23:09) face, was founded in 2004 in Oakland, (00:23:12) California. It initially sold just 13 (00:23:15) affordable quality makeup products (00:23:16) online. Within 3 years, the company grew (00:23:19) into a multi-million dollar company, (00:23:21) developing dozens more products and (00:23:22) partnering with retailers like Target. (00:23:25) It opened its own stores in 2013. CEO (00:23:28) Terangamin, who joined the company in (00:23:30) 2014, brought a wealth of experience (00:23:32) working with consumer product companies (00:23:33) like Proctor and Gamble. He wanted (00:23:35) E.L.F. to become even more accessible. (00:23:37) >> We want to be wherever our consumers are (00:23:40) shopping for for beauty. ELF is a very (00:23:42) elastic brand. Same quarter we launched (00:23:44) into Dollar General, we launched into (00:23:46) Sephora Mexico. (00:23:48) >> Also in 2014, E.L.F. expanded its reach (00:23:50) by selling internationally in the UK and (00:23:52) Canada. It went public in September (00:23:54) 2016, raising $141 million. The two most (00:23:58) important things that have fueled ELF's (00:24:00) strategy is marketing and its ability to (00:24:02) offer dupes of some very popular (00:24:05) prestige products at bargained prices. (00:24:09) Shoppers actually asked ELF like, (00:24:11) "Please create a dupe of the Drunk (00:24:13) Elephant." They're not actually (00:24:14) comparing the products themselves. They (00:24:16) won't say that publicly, but the (00:24:17) consumer does that for them. Selling (00:24:20) dupes, or cheaper yet premium versions (00:24:22) of popular makeup products, has been a (00:24:24) part of E.L.F.'s business model since (00:24:26) the beginning. But it has especially (00:24:28) benefited with the acceleration of dupe (00:24:30) culture over the past few years. (00:24:32) Americans are picking knockoffs as they (00:24:34) prioritize price and value, especially (00:24:36) Gen Alpha, Gen [music] Z, and millennial (00:24:38) consumers who have made E.L.F. their (00:24:40) most purchased cosmetic brand. According (00:24:42) to the company, (00:24:43) >> we don't make dupes. What we take is we (00:24:45) take inspiration from what our community (00:24:47) wants and the best products and (00:24:48) prestige. We always put an ELF twist on (00:24:50) it, so it's different and at a much (00:24:52) better value. So the real innovation (00:24:54) here is how you get that prestige (00:24:56) quality at the incredible values we're (00:24:58) able to. ELF's digital presence dates (00:25:01) back to its early roots as an online (00:25:02) only retailer. Its advertising (00:25:04) strategies have helped it win over (00:25:06) consumers from a variety of (00:25:07) demographics. It advertises on online (00:25:09) gaming platform Roblox, was an early (00:25:12) adopter of Tik Tok, and had a Super Bowl (00:25:14) halftime commercial with Jennifer Culage (00:25:16) in 2023. Oh my goodness, I look like a (00:25:19) baby dolphin. (00:25:21) >> All the user generated content of people (00:25:23) sharing like side by side of the Dior (00:25:26) lip oil and the E.L.F. lip oil. This is (00:25:28) free marketing for them constantly. (00:25:30) >> Honestly, they look basically identical. (00:25:38) The company adapts and creates new (00:25:39) products based on customer feedback, (00:25:41) which it closely monitors on social (00:25:43) media. They're paying attention to what (00:25:45) shoppers are asking for. They could post (00:25:47) an ad about this new product and people (00:25:50) be like, "I tried it. It was too sticky (00:25:52) or the lip oil is drying and the company (00:25:54) will actually go back and make the lip (00:25:56) oil more hydrating." So, keeping that (00:25:58) really close pulse on the consumer is (00:26:01) what E.L.F. has said has made it so (00:26:02) successful. The company has also been (00:26:05) quick to course correct. For example, in (00:26:07) 2019, the company was fined $1 million (00:26:09) for inadvertedly importing materials (00:26:11) from sanctioned North Korea. The next (00:26:13) month, Amin closed all 22 of ELF's (00:26:16) stores, saying it was to focus more on (00:26:18) growing the company's presence in (00:26:19) national retailers and digital channels. (00:26:21) And in May of that year, the first Trump (00:26:23) administration increased tariffs on (00:26:25) Chinese goods from 10% to 25%. At the (00:26:28) time, ELF sourced 100% of its products (00:26:31) there. So, the company started shifting (00:26:32) production away from China. (00:26:34) >> The way we went from 100% production in (00:26:36) China to 75% has less to do with tariffs (00:26:39) and more to do with having a well- (00:26:40) diversified supply chain. Our preferred (00:26:42) approach is we tend to find like-minded (00:26:44) suppliers where our quality people and (00:26:47) their facilities, our lean manufacturing (00:26:48) techniques are there so we can replicate (00:26:50) the exact same model in other (00:26:52) geographies. (00:26:53) >> While these events put some pressure on (00:26:54) the stock, the company had an overall (00:26:56) strong year. Beauty was a fast growing (00:26:58) segment and meant high turnover in terms (00:27:00) of inventory benefiting ELF. (00:27:03) Its stock grew more than 261% between (00:27:06) January 2019 and January 2022. Wall (00:27:10) Street started taking E.L.F. more (00:27:11) seriously. Coming out of the pandemic (00:27:14) when beauty was surging actually (00:27:17) especially in mass beauty where E.L.F. (00:27:19) was disrupting the cosmetics space was (00:27:22) really postco where we did see the (00:27:24) greatest benefits for E.L.F. its share (00:27:27) price nearly quadrupled from 2023 to hit (00:27:30) a peak in March 2024 though it has since (00:27:33) nearly hald. In that time, it acquired (00:27:36) Canadian skincare company Ntorium for (00:27:38) $355 million and started selling its (00:27:41) products in Dollar General stores. But (00:27:43) after several quarters of outsized (00:27:45) growth that began in 2023, investors (00:27:47) grew concerned as sales slowed. The (00:27:50) threat of tariffs was another major (00:27:51) concern. ELF's share price declined (00:27:54) almost 70% between July 2024 and April (00:27:57) 2025 (00:27:58) >> We're not worried about any short-term (00:28:00) stock reaction. I've been CEO 11 and 1/2 (00:28:02) years. We've seen our stock go from $8 (00:28:05) to $220 and everything in between for (00:28:09) us. It's about the long term and we feel (00:28:11) that this consistency of our delivery in (00:28:13) the end of the day is the most important (00:28:15) thing and people [music] always come (00:28:16) around. (00:28:17) >> They were stuck in the mud for a year (00:28:19) after being a rocket ship for so long. (00:28:21) So they were looking around saying, (00:28:22) "Okay, what do we do to shake free again (00:28:24) and to get moving?" You just there's a (00:28:26) world you got to just keep kind of (00:28:28) innovating. E.L.F. has been an (00:28:29) outperformer in the beauty industry. (00:28:31) While legacy players such as Estee (00:28:33) Lauder and L'Oreal have reported weaker (00:28:35) sales since June 2022, the E.L.F. brand (00:28:38) was the number one color cosmetics brand (00:28:41) by unit sold and number two by dollar (00:28:43) share in 2024. (00:28:45) >> We do think that over time they will (00:28:47) eventually be the number one mass (00:28:50) cosmetics company globally. In ELF's (00:28:52) full fiscal year 2025 earnings released (00:28:55) in May, the company grew net sales by (00:28:57) 28% to $1.3 billion. Its international (00:29:01) sales also grew 28% driven by expanding (00:29:04) into new markets like Germany, Belgium, (00:29:06) and Poland. In its fiscal Q1 2026 (00:29:09) earnings, ELF reported higher net sales (00:29:12) growth, though net income declined (00:29:14) substantially. Certainly tariffs are a (00:29:16) factor right now and we take a long-term (00:29:18) view and have real responsibility for (00:29:20) ensuring proper consumer value and so (00:29:23) that impacted obviously the gross margin (00:29:26) line but overall we had very strong (00:29:28) results including 12% adjusted IBITA (00:29:30) growth even in the face of tariffs (00:29:34) [music] (00:29:36) has stolen the spotlight because the (00:29:38) shares are up 25% (00:29:40) after they spent a billion dollars to (00:29:42) acquire Haley Bieber's company. It's (00:29:45) called Road. (00:29:46) >> The Road [music] deal announced the same (00:29:47) day as earnings surprised some experts. (00:29:50) >> We kind of from the M&A advisory world (00:29:54) assumed, hey, they they have to be heads (00:29:56) down and focused on the supply chain and (00:29:59) stock. Cannot imagine they're going to (00:30:00) take a big swing. (00:30:01) >> We've been tracking road for a long (00:30:03) time. We're always attracted to other (00:30:05) disruptors. And what Haley Bieber and (00:30:07) her team have done is nothing short of (00:30:09) remarkable. With just 10 products, Haley (00:30:12) Bieber's direct to consumer brand grew (00:30:14) to $212 million in net sales in a mere 3 (00:30:16) years. It has more than doubled its (00:30:18) customer base over fiscal year 2025 and (00:30:21) became the number one skincare brand in (00:30:23) earned media value, which is an estimate (00:30:25) on the performance of a company's (00:30:26) non-paid advertising like social media (00:30:28) mentions, reviews, or media coverage. (00:30:31) It's a very impressive ramp. um being (00:30:34) about three years old at this point, (00:30:36) we're more excited about ELF's ability (00:30:38) to help road expand distribution beyond (00:30:40) that Sephora agreement both domestically (00:30:42) and internationally. (00:30:44) >> ELF was already on the map. We launched (00:30:46) in Sephora with the E.L.F. brand last (00:30:49) year in Mexico. It was one of the best (00:30:50) launches they'd ever seen. Uh we loved (00:30:53) what we saw and so certainly this (00:30:54) broadens our partnership with Sephora by (00:30:56) going into all US and Canadian doors. (00:30:59) >> The acquisition is ELF's biggest ever. (00:31:01) It financed the deal with $600 million (00:31:04) of debt. (00:31:04) >> It was either get that debt or you're (00:31:06) not going to get this deal. I think (00:31:07) there's a very good chance that this (00:31:08) turns out to be pretty heavily (00:31:10) accreative through that lens. I like (00:31:12) them getting scrappy and figuring it (00:31:14) out. (00:31:15) >> There's a lot of whatifs. You look at (00:31:16) Selena Gomez, you look at Kylie Jenner, (00:31:18) some of the beauty brands that they (00:31:19) have, really strong performers. How long (00:31:22) does that last? There's certainly (00:31:24) questions um that Wall Street's going to (00:31:26) be asking as this uh company continues (00:31:29) to grow. (00:31:33) ELF is exposed to tariffs given its (00:31:34) heavy reliance on China. Today, 75% of (00:31:37) its products are sourced there. If (00:31:39) unchanged, ELF expects its cost of goods (00:31:42) sold to increase by at least $50 million (00:31:45) annually. And the new tariffs cause net (00:31:47) income and profits to each fall 30%. (00:31:50) However, the company is working on (00:31:52) lowering its dependence on China even (00:31:54) more, exploring options in Thailand and (00:31:57) parts of Europe. But that'll take time. (00:31:59) road sources primarily from Europe and (00:32:01) South Korea. ELF raised prices by $1 on (00:32:04) August 1st, but said the adjustment (00:32:06) won't mitigate any impacts until its (00:32:08) second quarter. It's the second time the (00:32:10) company has raised prices since 2022. (00:32:13) >> 75% of our products are still going to (00:32:15) be $10 or under. Uh we're doing more (00:32:18) supply chain optimization and business (00:32:20) diversification. Twothirds of Americans (00:32:22) live paycheck to paycheck. We actually (00:32:24) think it's immoral to charge them so (00:32:26) much money for products that we clearly (00:32:28) can make for a fraction of that price. (00:32:31) >> ELF is one of the most exposed consumer (00:32:33) companies when it comes to China (00:32:34) terrace. [music] Now it's $2 in the last (00:32:37) 5 years or so. Is that going to be the (00:32:39) thing that tips the consumer over? If (00:32:41) you have a good enough product that is (00:32:44) that well performing and that much (00:32:46) cheaper than the Prestige equivalent, (00:32:49) then my gut tells me consumers are still (00:32:51) going to shop and buy it. Um, but a lot (00:32:53) of that comes down to whether or not the (00:32:55) product's worth it. So far, consumers (00:32:56) have said that ELF's products are worth (00:32:58) it.