Hailey Bieber’s Rhode Cosmetics Line Set to Expand Elf beautyAnnual sales increased by $200 million this fiscal year, but its new parent company’s full-year guidance still fell short of expectations, leading to a 29% drop in its stock on Wednesday.
Elf, which declined to release its full-year forecast last quarter, expects annual revenue in the range of $1.55 billion to $1.57 billion, implying sales growth of 18 percent to 20 percent. That’s well below the $1.65 billion analysts expected, according to LSEG.
In an interview with CNBC, CEO Tarang Amin said Rhode, which the company acquired earlier this year in a blockbuster $1 billion deal, is expected to increase annual sales by $200 million this fiscal year and $300 million on an annual basis.
Rhode’s expected sales contribution represents about 13% of its revenue forecast, underscoring how important the deal is to Elf’s future as its outsized growth continues to moderate. This shows that Elf needs Rhode to help it grow in the coming quarters and that without this acquisition its potential for higher revenue could have been much slimmer.
On the profitability side, Elf expects full-year adjusted earnings per share to be between $2.80 and $2.85, well below expectations of $3.58, according to LSEG.
In addition to forecasts, Elf missed revenue estimates but beat earnings in its fiscal second-quarter results.
Here’s how the beauty company performed compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 68 cents adjusted versus 57 cents expected
- Income: $344 million versus $366 million expected
The company’s reported net income for the three months ended Sept. 30 was $3 million, or 5 cents per share, compared with $19 million, or 33 cents per share, a year earlier. Excluding one-time items related to stock-based compensation and other one-time charges, Elf reported earnings of 68 cents per share.
Sales reached $344 million, up about 14% from $301 million a year earlier.
Amin blamed these revenue and forecast misses on the company’s failure to issue guidance last quarter, which he said may impact consensus estimates.
“We actually think the sales we’ve had, as well as the guidance for net sales, are pretty strong,” he said.
Elf, which sources mainly from China, has seen its profitability crushed by President Donald Trump’s new tariffs. During the quarter, its net profit fell 84%, while the company said its gross margin fell 1.65 percentage points, mainly due to higher tariff costs.
Amin said the second quarter is expected to be the most affected by the tariffs and the impact is expected to gradually ease from there.
“In response to the tariffs, we increased our prices by $1, effective August 1, so you see the impact of the tariffs without tariffs in this quarter,” Amin said. “In the second half of the year, gross margin will actually improve sequentially.”
In the absence of major product launches from his namesake brand, which Amin said are currently in the works, Rhode is Elf’s main growth driver and so far the business is growing about 40% year-on-year, he said.
It launched in Sephora stores nationwide in September and is the largest brand launch the retailer has seen in North America in its history, Amin said.
“It was two and a half times bigger than number two, [Sephora’s] “We continue to see incredible growth potential, not only in North America where we have just launched and the UK where we are about to launch, but also internationally. … We clearly see global potential for this brand and we think it is much bigger than it is today.”