Here's our initial take on e.l.f. Beauty's (NYSE: ELF) fiscal third-quarter financial report.
Key Metrics
| Metric | Q3 FY 2024 | Q3 FY 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Total revenue | $270.9 million | $355.3 million | +31% | Beat |
| Adjusted earnings per share | $0.74 | $0.74 | 0% | Missed |
| Gross margin | 70.85% | 71.29% | +0.44 pp | n/a |
| Adjusted EBITDA | $59.1 million | $68.7 million | +16% | n/a |
e.l.f. Leaves Profit-Hungry Investors Unsatisfied
e.l.f. Beauty's fiscal third-quarter financial report featured two general themes that gave investors conflicting signals. On one hand, sales remained strong, with revenue climbing more than 30% year over year on favorable results from both its e-commerce channels and its retailer relationships. The company cited gains both in the U.S. and abroad, and improvements in gross margin signaled successful efforts to claw back on product costs and a more favorable exchange rate environment.
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Yet as we have seen in past quarters, e.l.f. wasn't able to translate its sales success into gains on the bottom line. Adjusted earnings per share of $0.74 per share were unchanged from year-ago levels, leaving e.l.f. with nine-month earnings of $2.61 per share, down 2% from the same three-quarter period in the previous fiscal year. A 36% jump in selling, general, and administrative costs weighed on operating income growth, particularly with stock-based compensation nearly doubling from where it was 12 months ago.
Unfortunately, e.l.f. doesn't see things getting better this quarter. Its latest guidance downgraded its full-year sales growth estimate from a range of 28% to 30% to a lower range of 27% to 28%. Earnings guidance got a roughly $0.20-per-share haircut, with a new range of $3.27 to $3.32 per share that would represent only modest growth from the $3.18 per share e.l.f. earned last year.
Immediate Market Reaction
Investors did not take kindly to the news, as shares of e.l.f. Beauty dropped more than 20% in the first hour of the after-hours trading session late Thursday following the report. If those losses hold, then it would take the beauty stock to levels last seen in the first half of 2023. Even with solid sales from the cosmetics specialist, shareholders wanted more evidence that e.l.f. will be able to translate its popularity into profits.
What to Watch
CEO Tarang Amin tried to keep investors' eyes on the long-term prize, noting that the cosmetics provider gained more than 2 percentage points of market share in the U.S. during the quarter. Moreover, when it comes to longer-term trends like digital distribution, international expansion, and a growing emphasis on color cosmetics and skin-care products, e.l.f. appears to have plenty of room to keep expanding.
What's increasingly clear, though, is that e.l.f. simply has to focus more attention on expense controls in order to boost earnings. Without such moves, shareholders could begin to doubt whether they'll ever receive the rewards they anticipate from e.l.f.'s sales success.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
