Fairy beautyThe company's growth story continues.
The cosmetics retailer on Thursday beat quarterly estimates again, reporting a 50% increase in sales.
The eye, lip and face cosmetics giant’s sales rose to $324.5 million in the fiscal first quarter, prompting it to raise its full-year outlook. The increase follows a stunning 76% jump in the year-ago quarter.
CEO Tarang Amin told CNBC that the company saw growth across all its categories, adding that the company’s Bronzing Drops quickly became a top-selling product on the company’s website after its launch during the quarter.
Here's how the cosmetics company performed compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:
Earnings per share: $1.10 adjusted vs. 84 cents expected Revenue: $324 million vs. $305 million expected
The company reported net income of $47.6 million, or 81 cents per share, for the three months ended June 30, compared with $53 million, or 93 cents per share, a year earlier.
Sales rose to $324.5 million, up about 50% from $216.3 million the previous year.
After quarter after quarter of explosive growth, Wall Street has high expectations for Elf Beauty. And while it raised its forecasts on Thursday, expectations remain stable after such a strong first quarter.
For fiscal 2025, Elf now expects sales of $1.28 billion to $1.3 billion, compared with its previous forecast of $1.23 billion to $1.25 billion. Analysts had expected sales guidance of $1.3 billion, according to LSEG.
The company now expects adjusted net income to be between $198 million and $201 million, compared with a previous forecast of $187 million to $191 million. Elf expects adjusted net earnings per share to be between $3.36 and $3.41, compared with its previous guidance of $3.20 to $3.25. Analysts were expecting earnings of $3.42 per share, according to LSEG.
Shares fell about 6% in extended trading.
When Elf reported its 2024 financial results in May, the company disappointed investors with a forecast that fell short of expectations. Sentiment later turned after CFO Mandy Fields indicated the company tends to issue conservative guidance.
“Last year, we started our forecast at 22% to 24%, and we ended the year at 77%,” Fields told analysts at the time. “I’m not saying we’re going to hit 77% this year for sure. But what I would say is that this gives you a little bit of a sense of our guidance philosophy.”
Fields takes a “balanced” approach to guidance and prefers to take things one quarter at a time, Amin told CNBC on Thursday.
“If you look at our history over the last five years, over these 22 quarters, we’ve typically been going lower than where we ended up,” Amin said. “We never want to get ahead of ourselves, and overall the strategy has worked great… We’ll walk you through what we’re seeing quarter by quarter, and hopefully we’ll continue to kind of weather that.”
He added that he was not concerned about consumer decline in the cosmetics category and remained “optimistic” about the broader environment.
“We’re kind of hearing in the macroeconomics, ‘Hey, is the consumer more selective?’ I would say if they are, they’re choosing Elf,” Amin said. “So we’re probably in a different position, and if you look at the last 22 quarters, it didn’t matter what was happening in the category, whether it was the pandemic, whether it was inflationary pressures… you name it, we’ve done well throughout that and I think it really boils down to our core business model and how we’re different.”
Elf, a digital beauty retailer founded in 2004, has gained new relevance among Gen Z and Gen Alpha consumers with marketing that reaches and meets these younger shoppers where they are on places like TikTok and Roblox.
The company is known for making value-priced versions of cult-favorite products, like its new tanning drops that customers have compared to Drunk Elephant's “sunshine drops.” Elf's line of luxury skincare products retails for $38, while its products retail for just $12.
“These tanning drops were the most requested product from our community, and our community would come to us and say, ‘Hey, there’s a great product out there. We love it, but Elf, help us. We can’t afford $38 for tanning drops,’” Amin said. “So we’re going to look into it. We’re going to put our own Elf spin on it and offer our product at $12. It went to number one on Elfcosmetics.com right away.”
The company doesn't compare its products to any specific brand, instead allowing its fan base to fill in the blanks.
“Although we don’t do the comparison ourselves, there are about a thousand videos on TikTok after this product launched where people are making comparisons between the two products. They say it’s $12 versus the $38 product, and in reality, I prefer the Elf product, the quality is better.
In July, the company expanded its collaboration with Roblox that enabled users ages 13 and up to purchase limited-edition products like the “elf UP! Pets Hoodie” and essentials like lip products and sunscreen.
During the Olympics, the company ran impressive marketing campaigns with three-time gold medalist gymnast Gabby Douglas and blind swimmer Anastasia “Tas” Pagonis. The company also collaborated with Alicia Keys and Jamila Jamil.
However, all that marketing doesn’t come cheap and it weighed on Elf’s bottom line. During the quarter, selling and general administrative expenses increased $88.6 million to $180.6 million, representing 56% of net sales. Higher marketing spending contributed to a 10% decline in Elf’s net income.
Amin said the company is spending more on marketing this year than last year, but that’s due to timing. He added that Elf is working to make marketing spending “more consistent” throughout the year as a percentage of sales.
“We continue to invest more in marketing because it pays off,” Amin said. “Our marketing ROI is multiples above category benchmarks, and we’re seeing very strong revenue growth. We’re also building awareness.”
