e.l.f. Beauty’s Earnings Call: Growth Amid Challenges

e.l.f. Beauty, Inc. ((ELF)) has held its Q2 earnings call. Read on for the main highlights of the call.

e.l.f. Beauty’s recent earnings call painted a picture of both triumph and challenges. The company celebrated significant market share gains and a successful acquisition of Rhode, yet faced hurdles with declining organic sales and slowed international growth. Despite a dip in gross margins due to tariff costs, the consumer response to price increases was notably positive, reflecting a resilient brand image.

Consistent Category-Leading Growth

e.l.f. Beauty marked its 27th consecutive quarter of net sales growth, achieving a 14% increase in Q2. This impressive streak places the company among a select group of public companies maintaining an average of at least 20% sales growth per quarter over such an extended period.

Market Share Gains

The e.l.f. brand continued its upward trajectory, growing 7% in the quarter, which is three times the category growth. This success translated into a 140 basis point increase in market share, marking the 27th consecutive quarter of market share gains.

Successful Acquisition and Launch of Rhode

The acquisition of Rhode significantly bolstered e.l.f. Beauty’s net sales, contributing $52 million in Q2. Rhode’s launch was historic, setting a new record at Sephora North America by exceeding the previous launch record by 2.5 times.

Strong Performance in the U.S.

In the U.S., e.l.f. Beauty saw net sales grow by 18% year-over-year in Q2, underscoring the brand’s robust domestic performance and consumer appeal.

Positive Consumer Response to Price Increase

Despite implementing a $1 global price increase, e.l.f. Beauty maintained a strong consumer base, with 75% of its portfolio priced at $10 or less. Consumption trends continued to outperform the category, highlighting consumer loyalty.

Organic Net Sales Decline

Excluding the impact of the Rhode acquisition, e.l.f. Beauty experienced a 3% decline in organic net sales in Q2, attributed to strategic decisions to halt shipments to certain retailers temporarily.

International Sales Growth Slows

International net sales saw a modest 2% growth in Q2, a slowdown influenced by the prior year’s significant launch into Rossmann, Germany.

Gross Margin Decline

The company’s gross margin decreased by approximately 165 basis points year-over-year in Q2, primarily due to increased tariff costs, impacting overall profitability.

Adjusted EBITDA Decrease

Adjusted EBITDA for the quarter was $66 million, reflecting a 4% decrease from the previous year, indicating some financial pressure amidst growth initiatives.

Forward-Looking Guidance

Looking ahead, e.l.f. Beauty projects a robust net sales growth of 18% to 20% for the full fiscal year, driven by the Rhode acquisition, which is expected to contribute significantly to sales. On an organic basis, excluding Rhode, net sales are anticipated to rise by 3% to 4%. The company remains optimistic about its growth strategy, despite tariff challenges, with expectations of adjusted EBITDA between $302 million and $306 million.

In summary, e.l.f. Beauty’s earnings call highlighted a company navigating both growth and challenges. While market share gains and strategic acquisitions bolster its position, the company faces hurdles in organic sales and international expansion. Nevertheless, the positive consumer response and forward-looking guidance underscore a resilient outlook for e.l.f. Beauty.