E.l.f. Beauty Inc., a leading beauty brand known for its affordable products, saw a 6% decline in its shares on Thursday, underperforming the broader consumer sector. However, according to Linda Bolton Weiser, a senior research analyst at DA Davidson, this selling activity may be an overreaction.
Weiser acknowledges that a slight pullback is warranted after E.l.f.’s impressive 121% gain in the year-to-date period. The market seems concerned about the potential gap between expected sales growth in the company’s fiscal second quarter and the current Wall Street consensus. Consequently, the magnitude of any positive sales surprise may be smaller when E.l.f. reports its numbers in November.
Looking ahead, Weiser notes that E.l.f. will face more challenging year-over-year comparisons starting in January. The company anticipates its sales to increase by approximately 50% compared to the same period last year.
In May 2023, E.l.f. Beauty experienced a significant boost in its stock price, rising by 11%, following an impressive 80% surge in sales.
During the fiscal first quarter, E.l.f. reported earnings of $1.10 per share on revenue of $216 million, surpassing analyst estimates by a wide margin. In comparison, analysts had expected earnings of 57 cents per share on revenue of $185 million. In the previous year’s first quarter, E.l.f.’s earnings per share were 39 cents, and its revenue amounted to $123 million.
Furthermore, the company raised its full-year revenue guidance to a range of $792 million to $802 million, up from its previous estimate of $705 million to $720 million. In 2022, E.l.f. Beauty’s revenue reached $578.8 million.
Additionally, E.l.f. adjusted its EPS guidance to a range of $2.19 to $2.22, up from the earlier projected range of $1.73 to $1.76.
Weiser emphasizes several positive factors that should encourage shareholders to remain optimistic about E.l.f.’s future prospects.
E.l.f. CFO Expects Continued Growth and Potential Takeover
The chief financial officer (CFO) of E.l.f., Mandy Fields, projects strong sales growth for the company in the fiscal second quarter. With a year-over-year increase of over 60% in the previous quarter, Fields’ conservative nature suggests that expectations could be even higher, potentially exceeding 75%. This projection aligns with E.l.f.’s successful first-quarter results, which reported a remarkable growth rate of at least 75%. Consequently, analysts anticipate another significant beat for this quarter.
Furthermore, the upcoming release of point-of-sale numbers by consumer data company IRI is expected to provide impressive figures. According to the analyst, last month’s data exhibited a staggering 77% increase compared to the previous year. DA Davidson predicts a growth rate of 63.4% for August, and any figure surpassing this estimate would indicate a further acceleration spanning two years—a highly positive outcome.
In addition to its outstanding sales performance, E.l.f. is embarking on the next phase of its white-space growth strategy through international expansion. This move emphasizes the company’s belief in its market potential beyond the United States. Notably, E.l.f.’s stronghold at Target stores already doubles its market share compared to other mass retailers, leaving ample room for additional growth.
As a single-brand beauty company experiencing high-growth, E.l.f. remains a potential candidate for acquisition. The analyst suggests that once Coty manages to reduce its debt load, it might express interest in acquiring E.l.f. as one of several possible suitors.
E.l.f.’s stock has demonstrated exceptional performance, gaining over 200% in the last year alone. In comparison, the S&P 500 index has only experienced marginal growth of 2.8% during the same period. Such significant stock appreciation illustrates investors’ confidence in E.l.f.’s future prospects.
With its CFO’s positive outlook, promising sales figures, and a potential takeover on the horizon, E.l.f. appears to be well-positioned for continued success.
