E.l.f. Beauty on Thursday cut its full-year guidance after seeing a 36% drop in profits and “softer than expected” sales trends in January, marking a rare downturn for one of beauty’s hottest brands.
The cosmetics company reported holiday sales that were higher than expected but profits that narrowly missed estimates, another rare miss for the retailer.
Shares of E.l.f. fell more than 20% in extended trading Thursday.
Here’s how E.l.f. did in its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- 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 Dec. 31 was $17.3 million, or 30 cents per share, compared with $26.9 million, or 46 cents per share, a year earlier. Excluding one-time items, including stock-based compensation and expenses associated with its acquisition of Naturium, E.l.f. posted adjusted earnings of 74 cents per share.
Sales rose to $355 million, up about 31% from $271 million a year earlier.
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, according to StreetAccount. 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.
The company’s implied guidance for its current quarter looks even more rough. Based on its full-year outlook and actual figures from the first three quarters, E.l.f. could see earnings per share of between 66 cents and 71 cents during its current quarter, far below expectations of 97 cents, according to a CNBC analysis and estimates from LSEG.
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.
When it comes to the overall category, Amin said mass cosmetics declined 5% in January and the company suspects that was driven by two factors: a hangover from holiday discounting and a slowdown in “social commentary,” or fewer people talking about beauty online, which can drive cosmetics sales.
“One, [with] the LA wildfires, people I think didn’t want to be tone deaf with posting a lot of things while that devastation went on. The second is, there was a lot of uncertainty around TikTok. I feel like the only things people were posting on TikTok was whether it was going to stay open or shut down,” said Amin. “Whatever the reason may be, that social commentary was way down.”
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.
Amin said it is too early to say whether E.l.f. will raise prices to offset the effect to profits, but the new 10% duties are better than what the company was bracing for.
Over the past couple of years, E.l.f. has been one of the fastest-growing brands in beauty, winning over shoppers young and old with its viral marketing, low prices and ability to offer high-quality, more-affordable “dupes” of prestige products.
While the brand is still growing and says it is still outpacing the overall category, that pace of growth is starting to slow down and recent product launches have not boosted sales in the same way they did in the past.
Amin said the company prefers to take a “prudent” approach to guidance and still considers it a win that E.l.f. is outperforming the overall category.
He said the company is using the profits it generates to invest in improvements to inventory management programs, infrastructure and international expansion.
