E.l.f. Beauty Cuts Guidance After Seeing 36% Drop in Profits

E.l.f. Beauty, one of the hottest beauty brands, has cut its full-year guidance after experiencing a 36% drop in profits and "softer than expected" sales trends in January.

Fiscal Third Quarter Results

The cosmetics company reported holiday sales that were higher than expected but profits that narrowly missed estimates, marking a rare miss for the retailer. Shares of E.l.f. fell more than 20% in extended trading Thursday.

Financial Highlights

Here are the key highlights from E.l.f.’s fiscal third quarter compared to what Wall Street was anticipating:

• Earnings per share: 74 cents adjusted vs. 75 cents expected
• Revenue: $355 million vs. $330 million expected

The company’s reported net income for the three-month period that ended December 31 was $17.3 million, or 30 cents per share, compared to $26.9 million, or 46 cents per share, a year earlier. Excluding one-time items, E.l.f. posted adjusted earnings of 74 cents per share.

Full-Year Guidance

For the company’s full fiscal year, which only has one quarter remaining, E.l.f. issued guidance that came in below Wall Street expectations. The retailer is now expecting sales of between $1.3 billion and $1.31 billion, below estimates of $1.34 billion. It had previously expected sales to be between $1.32 billion and $1.34 billion.

E.l.f. is also now expecting adjusted earnings per share of between $3.27 and $3.32, far below StreetAccount estimates of $3.54. E.l.f. had previously expected full-year earnings of between $3.47 and $3.53.

CEO’s Take

In an interview with CNBC, CEO Tarang Amin shrugged off concerns that there were larger issues at the company and instead pointed to an overall slowdown in the beauty category, tough prior-year comparisons, and recent product launches that did not perform as well as previous new items.

Amin attributed the decline in mass cosmetics to a hangover from holiday discounting and a slowdown in "social commentary," or fewer people talking about beauty online, which can drive cosmetics sales.

Tariffs and Supply Chain

Amin also weighed in on new tariffs against China and how the company is preparing. About 80% of its supply chain is in the region. He said it is too early to say whether E.l.f. will raise prices to offset the effect of the tariffs, but the new 10% duties are better than what the company was bracing for.

Conclusion

While E.l.f. Beauty has been one of the fastest-growing brands in beauty, the pace of growth is starting to slow down. Recent product launches have not boosted sales in the same way they did in the past. However, the company remains optimistic about its future and is using the profits it generates to invest in improvements to inventory management programs, infrastructure, and international expansion.

FAQs

Q: Why did E.l.f. cut its full-year guidance?

A: E.l.f. cut its full-year guidance after experiencing a 36% drop in profits and "softer than expected" sales trends in January.

Q: What are the reasons for the decline in mass cosmetics?

A: According to CEO Tarang Amin, the decline in mass cosmetics is attributed to a hangover from holiday discounting and a slowdown in "social commentary," or fewer people talking about beauty online.

Q: How will E.l.f. handle new tariffs against China?

A: E.l.f. is still assessing the impact of the new tariffs and has not decided whether to raise prices to offset the effect. However, CEO Tarang Amin said the company is better off than what it was bracing for.

Q: What is E.l.f. doing to improve its business?

A: E.l.f. is using its profits to invest in improvements to inventory management programs, infrastructure, and international expansion.