Elf sees Q2 sales boost with marketing, Europe expansion

Elf Beauty Q2 Sales Jump 51% as Europe Expansion and Marketing Drive Growth

Elf Beauty’s Financial Performance and Growth Strategies

By Arriana McLymore

NEW YORK, Nov 4 (Reuters) - Cosmetics company Elf Beauty raised its full-year sales guidance from a range of 18% to 20% to 22% to 24%, as its marketing campaigns and the international expansion of its prestige brand Rhode were expected to continue attracting shoppers. 

Q2 Sales Results and Revenue Drivers

Elf's net sales increased 51% to $520.8 million compared to last year, beating Wall Street expectations of $470.3 million. The Oakland, California-based company said US and international retail and e-commerce sales drove the growth. 

International Expansion and Brand Growth

"Seventy-five percent of Rhode's following is outside of the US, so we know that international growth is a big opportunity for the brand," Elf Chief Financial Officer Mandy Fields told Reuters. 

Younger shoppers are gravitating to prestige cosmetics and skincare brands, a trend that Elf is also seeing with Rhode, which it acquired in August last year. 

Marketing Investments and Tariff Refunds

Elf reinvested $52 million in IEEPA tariff refunds into marketing campaigns and reducing the prices on about 10% of its products. Fields said that given the "one-time" nature of the tariff refund payments, the marketing spend is not expected to remain constant into next year. 

Future Marketing Spend Outlook

"We'll have to right size that (marketing spend) as we get into next fiscal year," she said. 

Capital Allocation and Strategic Focus

Elf is now focusing its capital allocation on growing the business, investments in technology and AI, and brand presence in retail stores, Fields said. 

Key Business Highlights

• Rhode’s European Expansion

  Rhode expanded to 19 countries in Europe through LVMH's Sephora stores. The brand sells in less than 40% of Sephora stores, Elf executives said.

• Profit Margins and Store Expansion

  The company expects gross margin compression as Rhode expands to more physical stores, but continues to expect strong profit margins.

• Net Income and Earnings

  Net income was $30.0 million on a GAAP basis, missing estimates of $34.9 million.

• Gross Margin Performance

  Gross margin increased about 160 basis points to 71%, beating analyst expectations of 70.2%.

• SG&A Expenses

  Selling, general and administrative (SG&A) expenses increased $69.0 million to $300.1 million as it spent more on marketing, merchandising and distribution costs in the US and internationally. Analysts expected a $277.8 million spend.

• Diluted Earnings Per Share

  Diluted earnings per share was 50 cent, compared to analyst estimates of 60 cents per share.

• Adjusted Earnings Outlook

  The company updated its adjusted diluted earnings per share outlook from a range of $3.50 to $3.55 to $3.82 to $3.86 for the fiscal year.

• Expansion of Hairline

  Elf plans to expand its hairline to other stores using a similar strategy to the one it applied to its skincare line, Chief Executive Tarang Amin said on the company's earnings call on Wednesday.

(Reporting by Arriana McLymore in New York; Editing by Jonathan Spicer)