Business
Elf Beauty stock slides after Muddy Waters says it has shorted its shares
Global Banking & Finance Review®
Company
By Nell Mackenzie
LONDON (Reuters) – Muddy Waters has taken a short position in cosmetics company Elf Beauty, the hedge fund’s chief executive Carson Block said at the Sohn conference in London on Wednesday.
Shares in Elf were down 10% on the day after Block alleged at the event that Elf had overstated its revenue over the past three years, possibly by as much as $190 million.
California-based Elf did not immediately respond to Reuters email and phone requests for comment on Block’s allegation.
Block said that Muddy Waters would sell down its short position in Elf upon publishing its report about the company, for fiduciary responsibility and risk management purposes.
Block questioned Elf’s explanation at the time of its results in November last year for an additional $37 million of inventory in the second quarter.
The company said at the time this was as a result of it taking ownership of inventory from China when it shipped rather than waiting for it to arrive at its U.S. distribution center.
Block said on Wednesday that Muddy Waters had spoken to Elf’s Chinese suppliers and a former manager in China and concluded that the way these inventory numbers had been accounted for were “categorically false”.
Muddy Waters alleged in a presentation that Elf overstated its inventory numbers in order to cover for insufficient sales.
Elf said in a public filing it had net sales worth just over $1 billion in the fiscal year ended March 31, 2024.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Alexander Smith)
Short selling is an investment strategy where an investor borrows shares and sells them, hoping to buy them back later at a lower price to return to the lender, profiting from the price difference.
Revenue is the total income generated by a company from its business activities, typically from the sale of goods and services, before any expenses are deducted.
Inventory refers to the goods and materials a business holds for the purpose of resale. It includes raw materials, work-in-progress, and finished goods.
A hedge fund is an investment fund that employs various strategies to earn active returns for its investors, often using leverage and derivatives to maximize profits.
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