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Despite beating Wall Street expectations on revenue, E.l.f. Beauty experienced a significant 30% decline in net income during its fiscal first quarter, a downturn largely attributed to escalating tariffs on imports from China. The company reported net income of $33.3 million for the three months ending June 30, down from $47.6 million in the same period last year.
Tariff Uncertainty Dampens Outlook
The beauty brand, which sources approximately 75% of its products from China, refrained from issuing a full-year revenue forecast, citing considerable uncertainty surrounding the evolving tariff landscape. Instead, E.l.f. provided guidance only for the first half of its fiscal year, projecting sales growth exceeding 9% and adjusted EBITDA margins of 20%, a slight decrease from the 23% recorded in the first half of the previous fiscal year.
“We’re operating in a very volatile macro environment, obviously a great deal of uncertainty on tariffs, so until we have greater resolution on what the tariff picture looks like, we didn’t think it made sense to issue guidance,” a company spokesperson stated. “It’s the uncertainty around the tariffs that make things more difficult.”
Mitigating the Impact of Tariffs
E.l.f. Beauty has already taken steps to offset the increased costs associated with tariffs, including a $1 price increase on select products. The company is also actively pursuing strategies to diversify its supply chain and expand its presence beyond the U.S. market.
According to the company, current tariffs on goods from China stand at 55%, a figure that, while substantial, is viewed as preferable to the potential 170% rates initially feared. “I never thought I would see a day that I’m happy to see 55% tariffs, but it’s a lot better than 170%, so I think once we have that resolution, we’ll be in a better spot,” the spokesperson added.
Revenue Beats, But Growth Slows
Despite the profit decline, E.l.f. exceeded analyst expectations on both earnings per share and revenue. The company reported adjusted earnings of 89 cents per share, surpassing the anticipated 84 cents, and revenue of $354 million, exceeding the expected $350 million.
However, the reported net income of $33.3 million, or 58 cents per share, represents a decrease from the $47.6 million, or 81 cents per share, reported during the same period last year. Adjusted net income reached $51.3 million, or 89 cents per share, after excluding one-time expenses. Sales increased by 9% to $354 million, up from $324 million a year earlier.
This marks the second consecutive quarter of single-digit revenue growth for E.l.f., a shift from the high double-digit growth experienced over the past four years. This slowdown coincides with a broader cooling trend in the beauty category following a period of exceptional growth.
Strategic Acquisitions and Product Innovation
E.l.f. Beauty continues to invest in strategic initiatives to drive future growth. The company recently completed the acquisition of Hailey Bieber’s beauty brand, Rhode, which is slated to launch in Sephora stores across the U.S. and Canada in September. The full impact of this acquisition on E.l.f.’s sales will not be reflected in financial results until later in the year.
A key component of E.l.f.’s success lies in its ability to launch popular products that serve as affordable alternatives – often referred to as “dupes” – to higher-priced prestige brands. The recent launch of the Bright Icon Vitamin C + E Ferulic Serum, priced at $17, is seen as a comparable offering to SkinCeuticals’ $185 product.
Despite the challenges posed by tariffs and a softening consumer market, E.l.f. Beauty maintains a positive outlook, citing Nielsen data that indicates the company is gaining market share and outperforming the overall category. The company anticipates improved growth in the current quarter, building on the 9% sales increase achieved in the previous period.
