ELF Reported after the bell
Sales/Revenue 324,477M
+19.7% quater over quater
+50% yr over yr.
Gross margins 71%
Diluted earnings per share were $0.81 on a GAAP basis. Adjusted diluted earnings per share were $1.10.
Adjusted EBITDA was $77.4 million, or 24% of net sales, up 4% year over year.
Liquidity
As of June 30, 2024, the Company had $109.0 million in cash and cash equivalents and $159.2 million of long-term debt and finance lease obligations, as compared to $142.5 million in cash and cash equivalents and $59.6 million of long-term debt and finance lease obligations as of June 30, 2023.
Updated Fiscal 2025 Outlook
The Company is providing the following updated outlook for fiscal 2025. The updated outlook for fiscal 2025 reflects an expected 25-27% year-over-year increase in net sales, as compared to an expected 20-22% increase previously.
Updated Fiscal 2025 Outlook
Previous Fiscal 2025 Outlook
Net sales
$1,280-1,300 million
$1,230-1,250 million
Adjusted EBITDA
$297-301 million
$285-289 million
Adjusted effective tax rate
20-21%
20-21%
Adjusted net income
$198-201 million
$187-191 million
Stock down 10.35% after hrs.
Looks like a pretty solid quater to me, not sure why the negative after hrs reaction.
i have been reading that investors are becoming margin sensitive as multiple companies are reporting pressure on profit margins from reduced pricing and competition, increased costs, and supply chain issues…
Looks like elf may not be immune from these margin pressures as this article describes:
e.l.f. has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.4% over the last two years, better than the broader consumer staples sector.
Taking a step back, we can see that e.l.f.'s margin dropped by 10.2 percentage points during that time. e.l.f.'s two-year free cash flow profile was compelling, but shareholders are surely hoping for its trend to reverse. Continued declines could signal that the business is becoming more capital-intensive.
e.l.f. broke even from a free cash flow perspective in Q2. The company’s cash profitability regressed as it was 10.4 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.
i still feel most positive about the company and consumers resilience, especially in this category with the lipstick effect, and have no intention of reducing my holdings … if an opportunity presents i may add and as you suggest it is a resilient company with innovative management delivering a strong quarter.
Since ELF’s gross margins were 71% plus which is ENORMOUSLY high for a company that sells physical things, we can conclude that they haven’t had to cut prices, and that they haven’t had suppliers raise prices.
This means that profit margin reduction this quarter was due to decisions that the company made themselves for what they considered good business reasons.
Note that revenue was up 1% qoq, not 19.7%. YoY growth also slowed to 50% after 5 straight quarters of >70%. And Q1 is usually a strong quarter for ELF, so the reason for this slowdown is unclear:
Was there any explanation from management why sequential revenue was mostly flat? I couldn’t find anything explaining this in the transcript.
The CFO said results were,
“outstanding”
“super proud of the 50% net sales growth that we just delivered really incredible”
“expect Q2 results to be better than our annual outlook, which we feel great about”
“50%, we do believe was a pretty tremendous quarter”
On the Q2 results they say the growth will be better than the annual outlook. The annual outlook is for 25-27% growth and the comp against last year’s Q2 is against 216M. Twenty seven percent growth on 216M is 274M. The CFO assuring they are going to get at least 274M revenue next quarter is definitely not inspiring confidence.
Again this conference call is the analysts trying to parse the CFO’s guides comments which imply sequential decelerations. I was okay when ELF was delivering way above expected results and the guides were obvious sandbags, but now with delivering a sequentially flat quarter we got little explanation, and still low ball guides.
One more concern I have is adj SG&A has gone year over year from 39% of revenue to 51% of revenue. They included the reasons as marketing and digital spend, comp + benefits, operations costs, and retail costs. The company is still just over 500 employees so it doesn’t seem like employee costs is the driver but marketing is. They’ve mentioned they have been driving up marketing, but this quarter it doesn’t seem to have added revenue as you would expect from that level of marketing spend.
I showed my daughters the ELF conference call and they were not impressed by the hard sell, long interludes, and AI generated graphics. They thought the CEO came across rather poorly.
Anyone else notice the sharp increase in inventories from $98M → $200M ?
Even if they do 50% YoY for Q2 that is another flat QoQ. They would still be on target for their annual guide but that’s a huge deceleration of growth. They would have to accelerate quite a bit in H2 for the massive beats of the past.
I reduced my position by about two thirds
There’s always been a flat QoQ growth every 2-3 qtrs.
Q1 also has historically contributed aprox 21% of the full year rev. Assigning a 21.2% of the revenues to the 324.5m in rev this qtr would mean a full rev for this year of 1.53B.
I believe the reasons for this flat qtrs might be inventory plus new product releases.
Q1 2022: $97 million
Q2 2022: $91.85 million (-5.31%)
Q3 2022: $98.1 million (+6.80%)
Q4 2022: $105.14 million (+7.18%)
Q1 2023: $122.6 million (+16.61%)
Q2 2023: $122.35 million (-0.20%)
Q3 2023: $146.5 million (+19.74%)
Q4 2023: $187.4 million (+27.92%)
Q1 2024: $216.3 million (+15.42%)
Q2 2024: $215.5 million (-0.37%)
Q3 2024: $270.9 million (+25.71%)
Q4 2024: $321.1 million (+18.53%)
Q1 2025: $324.5 million (+1.06%)
This was an ok quarter I thought too. I have cut my position sizing in half to 5% now. On top of the flat QoQ, the analyst beats have come down to mid single digits.
So the onus is back on ELF to perform huge in the back half of the year, which I think they can do but it’s not a slam dunk no more.
I think the key pressure on the margin was due to the Red Sea disruptions that they alluded to on the conference call and they stated shipping costs have continued to rise recently.
They also said have moved 20% of manufacturing away from China and they are trying to move more of their manufacturing away from China to mitigate tariff concerns. That may be pinching their margins as well.
My guess is that they sandbagged their due to the transition in manufacturing and potential concerns with the economy.
That said, there’s a lot to be happy about.
International sales at 91% growth.
Tepid economic growth may push more consumers to elf to economize over premium brands.
Off shoring manufacturing from China is a good strategy.
Increasing shelf space at Walmart.
Online sales data used to rapidly change shelf allocation in mass merchandise.
I think things are going well on the international and online fronts, so elf should be OK.
Note that those flat/decel quarters you showed in your table were always Q2’s suggesting Q2 is seasonally weak. Q1 has never been this weak sequentially, and if you strip out Naturium, which is inorganic, then yoy growth was even lower this quarter.
And we’ve got that seasonally weak Q2 coming up next.
Revenue came to a screeching halt this quarter and management congratulated themselves on it.
I sold my whole position and it was my second biggest going into the ER.
Yes, totally and I didn’t hear a good reason for this earlier than normal deceleration. I miss those strong SaaS results. We were getting like an extra qtr a year, while now were getting like one qtr less a year or worse.
Yep. Great point on the inorganic growth. Q2 QoQ will be flat; negative for organic. Looks like management really did get surprised by the blowout 2024 and their 2025 guides are more in line with reality.
On the Q2 results they say the growth will be better than the annual outlook. The annual outlook is for 25-27% growth and the comp against last year’s Q2 is against 216M. Twenty seven percent growth on 216M is 274M. The CFO assuring they are going to get at least 274M revenue next quarter is definitely not inspiring confidence.
I read this part as : Our annual revenue outlook is 1290 at midpoint. To meet this, we need to do 322M each of the next 3 quarters. 322M in Q2 means 49.5% YoY and -3% QoQ. So CFO saying we will be better than that - I took is as we will be better than -3% QoQ in Q2 (probably 0%QoQ or 50.5% YoY) which is still a big deceleration.
As Brittlerock, I, too, sold ELF and purchased AXON.
My reasoning is ELF in for a rough few quarters due to (1) Red Sea problems increasing shipping costs and (2) an ongoing transition from Chinese manufacturing, which I think will be a costly transition. Long term, I think ELF will be a solid position. The slowing economy may even increase their consumer base. On balance, I think it’s best to move to the sidelines for a few quarters and grab shares at a little better valuation.
As for AXON, I was VERY impressed with their conference call and their new software to automate police reports. I thinks that’s definitely worth a look.
