Elven beauty is considering rolling back some of the tariff-fueled price increases it implemented less than a year ago after the retailer saw a decline in demand that has accelerated in recent months as consumers face higher gas prices.
“Anytime you accept such a large price increase, you’re going to see a degradation in units, but I would say we’ve seen units decline a little bit more over the last few months as consumers have particularly suffered from rising costs,” CEO Tarang Amin told CNBC in an interview. “So that’s one of the reasons why we want to strengthen our value proposition.”
Recently, Elf tested a $4 price reduction on its $18 Halo Glow skin tint and saw a nearly 40% increase in business, which showed the company how “sensitive” consumers are to price right now, Amin said.
As a result, it plans to test additional price reductions on certain product families to see if this will boost unit growth. Last August, it raised prices by $1 across its entire Elf line.
“There will be additional items that we will test lower prices on to be able to really strengthen our value proposition at a time when the consumer is hurting,” Amin said.
Elf’s plans to cut prices came as the company reported fiscal fourth-quarter results that beat Wall Street’s top and bottom line expectations, but issued guidance that was unconvincing.
Here’s how the beauty retailer performed in the quarter compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 32 cents adjusted against 29 cents expected
- Income: $449 million versus $423 million expected
In the quarter ended March 31, Elf reported a loss of $49.4 million, or 82 cents per share, compared with a profit of $28.3 million, or 49 cents per share, a year earlier.
Elf’s loss was primarily driven by a $57.6 million cost associated with the Rhode acquisition that the company incurred under the terms of the deal following better-than-expected brand performance. Excluding that charge and other one-time expenses, Elf reported net income of $19.4 million, or 32 cents per share.
Sales reached $449 million, up about 35% from $332.6 million a year earlier.
During the quarter, Elf saw its gross margin increase 1.4 percentage points to 73%, largely due to the higher prices the company is currently charging for certain products. When asked what these reductions would mean for future margins, Amin said the company expects a $55 million duty refund, which will offset the impact on profitability.
Still, the company’s guidance for fiscal 2027 turned out to be weaker than expected. Elf said it expects sales between $1.84 billion and $1.87 billion, well below expectations of $1.87 billion, according to analysts surveyed by LSEG.
The profitability situation seems worse. The company said it expects adjusted earnings per share of between $3.27 and $3.32, well below expectations of $3.61 per share.
“I’m really proud of the profitability we just achieved despite pricing at 55%, so the team has done a really good job navigating a pretty crazy pricing environment,” Amin said. “For the coming year, we have forecast stable gross margins, which we believe is also quite strong in the environment in which we operate. We’re still facing 35% tariffs, which is what we modeled for the year, and then we continued to expand Rhode’s retail business.
Since its acquisition of Rhode, announced about a year ago, the famous beauty brand has been the main driver of Elf’s overall growth. Over the past year, sales have increased by 80%, fueled by its expansion into Sephora North America, Sephora UK and Mecca. Rhode now holds the #1 brand position at all three retailers.
This fall, Rhode is expected to launch in 19 European countries with Sephora, so there’s still “a huge amount of white space” for the brand, Amin said.
In years past, Elf’s growth was primarily driven by ultra-popular product launches. While Rhode is now driving growth, it’s unclear how much of a runaway the brand still is and what that will ultimately mean for the company. Amin said “balanced growth” would define the future of its brand portfolio, which it said it was ready to expand.
“Our first priority is to achieve the organic growth we have with our existing portfolio. We have a very high bar when it comes to mergers and acquisitions,” Amin said. “But the good news is that we are a destination of choice for the strongest founders in the industry, given our approach of supporting a founder’s vision and being able to leverage our capabilities and continue to accelerate growth. So I would say that M&A is definitely part of our future.”