Cosmetics and skincare company e.l.f. Beauty (ELF, Financial) delivered strong quarterly results, surpassing 1Q25 EPS and revenue estimates. Despite outperforming a sluggish beauty market, ELF's FY25 guidance fell short of analysts' expectations, causing shares to drop.
- In its Q4 earnings report on May 22, ELF initially forecasted FY25 EPS of $3.20-$3.25 and revenue of $1.23-$1.25 billion, both below estimates. However, strong Q4 results and positive market share gains led investors to believe the company was being cautious.
- ELF later raised its FY25 EPS guidance to $3.36-$3.41 and revenue to $1.28-$1.30 billion. However, the increase did not fully reflect the Q1 beat, implying a conservative outlook for the rest of FY25.
- During the earnings call, ELF projected Q2 net sales growth slightly above its 25-27% annual growth target, lower than analysts' expectations. Additionally, Q2 adjusted EBITDA margin could drop to the low-teens due to the Naturium acquisition, compared to 24% in Q1.
- ELF's competitors are also facing weaker demand. L'Oreal (LRLCY, Financial) expects slower market growth, and Estee Lauder (EL, Financial) provided disappointing Q3 earnings and lower guidance for Q4 and FY24.
- Despite industry challenges, ELF continues to outperform. In Q1, ELF's cosmetics business grew 26% in tracked channels, while the broader category declined 1%. ELF is now the #2 U.S. brand with a 12% market share, up from three years ago. In skincare, ELF grew 45%, far exceeding the category's 1.4% growth.
- ELF attributes its market share gains to its value proposition, offering many products under $10, with an average price of $6.50, compared to over $20 for premium brands. The company believes its quality matches that of prestige brands.
Overall, ELF's Q1 results were robust, with 50% revenue growth (+91% internationally) and an 80-bps increase in gross margin to 71%. However, the guidance for slower growth and lower margins next quarter overshadowed these achievements.
