Hailey Bieber's cosmetics line, Rhode, is poised to significantly impact E.l.f. Beauty's financial performance, with expectations to augment the company's annual sales by $200 million this fiscal year. Despite this promising development, E.l.f. Beauty's new parent company has issued full-year guidance that has fallen short of market expectations, resulting in a sharp 29% decline in stock value on Wednesday.
In a recent interview with CNBC, E.l.f. Beauty CEO, Tarang Amin, revealed that the company anticipates full-year revenue to fall between $1.55 billion and $1.57 billion, signifying an estimated growth of 18% to 20%. However, this forecast is notably below the $1.65 billion analysts had expected, as per data from LSEG. The acquisition of Rhode, completed earlier this year in a landmark $1 billion deal, is critical for E.l.f.'s future growth, especially as the company's past rapid expansion begins to stabilize.
Rhode's contribution to E.l.f.'s revenue forecast is projected to account for approximately 13% of total sales, underscoring the importance of this acquisition in driving future growth. Without Rhode, E.l.f.'s potential for revenue enhancement would likely have been significantly limited.
While Rhode is expected to be a key growth driver, E.l.f. is also grappling with profitability issues. The company estimates full-year adjusted earnings per share to be between $2.80 and $2.85, which falls short of the expected $3.58, according to LSEG. Additionally, E.l.f. missed revenue expectations despite surpassing earnings forecasts in its fiscal second-quarter results.
When comparing E.l.f.'s performance to Wall Street predictions, the results are as follows: Earnings per share came in at 68 cents adjusted, exceeding the anticipated 57 cents, while revenue reached $344 million, falling short of the expected $366 million.
For the quarter ending September 30, E.l.f. reported a net income of just $3 million, or 5 cents per share, a stark decline from $19 million, or 33 cents per share, from the previous year. When excluding one-time items related to stock-based compensation and other non-recurring costs, E.l.f. achieved earnings of 68 cents per share, demonstrating a 14% increase in sales compared to $301 million a year earlier.
Amin noted that the lack of full-year guidance released last quarter may have influenced consensus estimates, stating, "We actually believe both the sales that we delivered, as well as the guidance on net sales, are quite strong."
Another factor contributing to E.l.f.'s challenges is the impact of tariffs, particularly from the policies implemented during President Donald Trump's administration. The company's net income experienced a staggering 84% decline, and gross margins fell by 1.65 percentage points, largely due to increased tariff costs. Amin indicated that the second quarter will likely reflect the most significant impact from tariffs, although he expects this effect to lessen in subsequent quarters.
To mitigate tariff impacts, E.l.f. raised prices by $1 effective August 1. Amin explained, "You're seeing tariff impact without pricing in this quarter. In the second half of the year, gross margin will actually improve sequentially."
With major product launches from its primary brand currently in development, Rhode stands as E.l.f.'s main growth driver. Amin stated that Rhode is currently experiencing an impressive 40% year-over-year growth. The brand made its debut in Sephora stores across North America in September, marking the largest brand launch in the retailer's history, outpacing its second largest launch by a factor of two and a half.
Amin expressed optimism regarding Rhode's prospects, stating, "We continue to see incredible potential for growth, not only in North America but also in the UK where we're about to launch, and internationally. We definitely see global potential for that brand and see it being much bigger than it is today."
