E.l.f Beauty Sinks 9% Pre-Market On Weak Earnings Guidance

Shares of e.l.f Beauty are down 8.7% in pre-market trading today despite the company posting better-than-expected results for the second quarter of fiscal 2021 (ended Sept. 30). Investors were disappointed with the company’s earnings outlook which missed analysts’ guidance.

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e.l.f Beauty’s (ELF) 2Q FY21 sales grew 7% Y/Y to $72.4 million driven by higher digital sales and international growth. It surpassed analysts’ expectation of $68.5 million. The company’s adjusted EPS increased 6.7% to $0.16 and beat analysts’ estimate of $0.13.

Commenting on the results, CEO Tarang Amin said, “This is our seventh consecutive quarter of net sales growth. Of the top five color cosmetics brands in the U.S., e.l.f. was the only brand to post growth in the quarter, and the only brand to grow share, according to Nielsen. We also took important next steps in our transformation to a multi-brand portfolio with the unveiling of Keys Soulcare and the launch of our recharged W3LL PEOPLE brand.”

Looking ahead, the company expects FY21 sales between $297 million and $303 million, reflecting growth in the range of 5% to 7%. It expects FY21 adjusted EPS in the range of $0.59 to $0.63 compared to $0.63 in FY20. Analysts predicted FY21 EPS of $0.66 on sales of about $296 million.

Oppenheimer analyst Rupesh Parikh said that the company’s 2Q results “represents a standout performance in the current challenging beauty backdrop.” He noted that the company introduced a mixed FY21 outlook with a stronger top-line but weaker adjusted EBITDA driven by investment spending.

Parikh reiterated a Hold rating for ELF saying “Our Perform rating primarily reflects concerns related to COVID-19 and valuation.” (See ELF stock analysis on TipRanks)

Over the long-term, e.l.f Beauty said that it believes it can generate compounded annual top-line growth in the mid- to high-single digits over the next three fiscal years driven by e.l.f. Cosmetics growth and shelf space gains coupled with contributions from strategic extensions like Keys Soulcare and W3LL PEOPLE. Also, it anticipates achieving adjusted EBITDA leverage through a mix of top-line growth and leverage on the cost of goods sold and/or selling, general and administrative expenses over the next three fiscal years.

Meanwhile, the Street is cautiously optimistic on ELF shares. A Moderate Buy analyst consensus is based on 5 Buys and 2 Holds. Shares have surged about 33% year-to-date and the average analyst price target of $24 indicates further upside potential of 12.4%.