E.l.f. Beauty is planning to reverse some of the price increases it implemented less than a year ago, a move driven by a noticeable slowdown in unit sales as consumers pull back on spending. CEO Tarang Amin stated that the company has observed a decline in unit sales over the past few months, attributing it to consumers facing increased costs.
"We've seen units drop off a bit more in the last few months as consumers have particularly been suffering with higher costs," Amin told CNBC in an interview. He emphasized the company's intention to reinforce its value proposition during this challenging period for consumers.
This strategic shift comes as E.l.f. Beauty reported its fiscal fourth-quarter earnings, which surpassed Wall Street's expectations for both revenue and earnings per share. However, the company's forward-looking guidance did not generate significant excitement.
E.l.f. Beauty's decision to revisit its pricing strategy was prompted by recent market observations. The company conducted a test by reducing the price of its $18 Halo Glow skin tint by $4. This initiative resulted in a nearly 40% increase in sales for that specific product, underscoring the significant price sensitivity among consumers at present, according to Amin.
"There'll be additional items that we will test lower pricing on to really be able to reinforce our value proposition at a time when the consumer is suffering," Amin added, indicating a broader plan to explore price adjustments across its product lines.
Last August, E.l.f. had increased prices by $1 across its entire product assortment. The company is now aiming to offset the impact of these planned price reductions on its profit margins. Amin indicated that E.l.f. anticipates receiving a $55 million tariff refund, which is expected to mitigate any negative effects on profitability.
"I'm really proud of the profitability we just delivered that was in the face of 55% tariffs, so the team's done a really nice job navigating through a pretty crazy tariff environment," Amin commented. He also noted that the company is guiding for flat gross margins for the upcoming year, which he considers strong given the current economic climate and ongoing tariffs at the 35% level.
Financially, for the quarter ending March 31, E.l.f. reported a net loss of $49.4 million, or 82 cents per share. This contrasts with a net income of $28.3 million, or 49 cents per share, recorded in the same period the previous year. The significant loss was largely due to a $57.6 million cost associated with the acquisition of Rhode, a celebrity beauty brand.
Excluding this acquisition-related charge and other one-time expenses, E.l.f. achieved a net income of $19.4 million, or 32 cents per share. Revenue for the quarter reached $449 million, marking a substantial increase of approximately 35% from the $332.6 million reported in the prior year.
During the reported quarter, E.l.f.'s gross margin expanded by 1.4 percentage points, reaching 73%. This improvement was significantly influenced by the higher pricing that the company is now beginning to adjust for select products.
Despite the strong quarterly performance, E.l.f.'s fiscal 2027 guidance fell short of expectations. The company projects sales between $1.84 billion and $1.87 billion, which is generally below the $1.87 billion anticipated by analysts. The outlook for profitability appears even more constrained, with adjusted earnings per share projected to be between $3.27 and $3.32, considerably lower than the $3.61 per share expected by Wall Street.
The acquisition of Rhode, finalized about a year ago, has been a primary driver of E.l.f.'s overall growth. The brand has experienced an 80% sales increase over the past year, bolstered by its successful expansion into major retailers like Sephora North America, Sephora UK, and Mecca, where it now holds the number one brand position in each.
Looking ahead, Rhode is slated to launch in 19 European countries through Sephora in the fall, indicating substantial growth potential. While E.l.f.'s historical growth was often fueled by innovative product launches, the current growth trajectory is heavily reliant on Rhode. Amin expressed that the company is focused on achieving "balanced growth" across its portfolio and remains open to further acquisitions, though M&A is not the immediate priority.
"Our first priority is realizing the organic growth we have with our existing portfolio. We have a very high bar when it comes to M&A," Amin stated. "But the good news is we're a destination of choice for the strongest founders in the industry, just given our approach of supporting a founder's vision and being able to lend our capabilities and continue to accelerate the growth. So I'd say M&A is definitely part of our future."
E.l.f. Beauty's stock saw a rise of approximately 7% in after-hours trading following the earnings announcement.
