Shares of E.L.F Cosmetics Surge after Company Releases Q4 Results

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Shares of E.L.F Cosmetics Surge after Company Releases Q4 Results

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What happened 

The share price of ELF Cosmetics(NYSE: ELF) surged on Thursday after the cosmetics company released its fourth-quarter results on May 21, 2020. Sales grew 13% in the fourth quarter, attributable to their e-commerce channels.

(Source: CNBC)

So what?

E.l.f. is one of the first online beauty brands and it distributes its products nationally through leading retailers such as Target, Walmart, Ulta Beauty, etc. The product range includes high-quality, easy on the wallet skincare products and cosmetics that are all-inclusive and vegan and cruelty-free.

Financial Highlights

Net sales increased 6%, or $15.2 million, to $282.9 million, as compared to $267.7 million in fiscal 2019. The increase was primarily driven by increased productivity across our retail and e-commerce channels, partially offset by the closing of all 22 e.l.f. retail stores in February 2019. Fiscal 2019 included $12.0 million in net sales related to e.l.f. retail stores. Excluding the contribution from e.l.f. retail stores, net sales increased by 11% as compared to fiscal 2019.

Net sales increased 13%, or $8.6 million, to $74.7 million as compared to $66.1 million in the three months ended March 31, 2019. The three months ended March 31, 2019, included $1.9 million in net sales related to e.l.f. retail stores. Excluding the contribution from e.l.f. retail stores, net sales increased 16% as compared to the three months ended March 31, 2019.

Gross margin increased to 64% from 61% when compared to fiscal 2019, with benefits primarily from margin accretive innovation, cost savings, price increases, favorable movements in foreign exchange rates and an increase in inventory reserves in the prior year, partially offset by higher sales adjustments and the impact of tariffs on goods imported from China.

Selling, general and administrative expenses (“SG&A”) was $157.2 million, or 56% of net sales, compared to $137.7 million, or 51% of net sales in fiscal 2019. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) was $139.3 million, or 49% of net sales, compared to $120.3 million, or 45% of net sales in fiscal 2019. The increase was primarily due to investments in marketing and digital expenses, bonus accrual, investment in merchandising programs, and increased depreciation expenses driven by customer fixture programs. These increases were partially offset by the closure of e.l.f retail stores.

SG&A was $47.0 million, or 63% of net sales, compared to $37.3 million, or 56% of net sales in the three months ended March 31, 2019. Adjusted SG&A was $41.5 million, or 55% of net sales, compared to $33.6 million, or 51% of net sales in the three months ended March 31, 2019. The increase was primarily due to investments in marketing and digital expenses and merchandising investments.

On a GAAP basis, net income was $17.9 million, or $0.35 per diluted share, based on a weighted-average diluted share count of 50.8 million shares. This compares to a net loss of $3.1 million, or $0.06 per diluted share, based on a weighted-average diluted share count of 49.3 million shares in fiscal 2019.

On a GAAP basis, net loss was $0.3 million, or $0.01 per diluted share, based on a weighted-average diluted share count of 51.0 million shares. This compares to a net loss of $17.9 million, or $0.37 per diluted share, based on a weighted-average diluted share count of 48.0 million shares in the three months ended March 31, 2019.

Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) slightly increased to $62.6 million from $62.4 million in fiscal 2019. Adjusted EBITDA decreased 3% to $11.7 million from $12.0 million in the three months ended March 31, 2019.

Adjusted net income was $32.2 million, or $0.63 per diluted share, based on a weighted-average diluted share count of 50.8 million shares. This compares to adjusted net income of $32.7 million, or $0.66 per diluted share, based on a weighted-average diluted share count of 49.3 million in fiscal 2019.

Adjusted net income increased to $5.3 million, or $0.10 per diluted share, based on a weighted-average diluted share count of 51.0 million shares. This compares to adjusted net income of $3.2 million, or $0.06 per diluted share, based on a weighted-average diluted share count of 49.4 million in the three months ended March 31, 2019.

 

Now what

“We’ve taken up our investment levels on both marketing and digital and it’s just been really great consumer engagement,” said Amin in an interview. “Our e.l.f cosmetics dotcom business is up triple-digits, but I think even our retailer dot-com businesses are up significantly as well.” 

Amin said much of the company’s advantage also lies within its accessible price point, offering both makeup and skincare products at lower prices to the industry standard.

“Given our fiscal 2020 results and execution of our five strategic imperatives, we believe we are well-positioned relative to the category to navigate the challenges posed by COVID-19. Our mission to make the best of beauty accessible to every eye, lip,and face is more important than ever. While the current environment is challenging, we believe our talented team, digital strength,and core value proposition will enable us to continue to gain market share.”

The company has decided to suspend its  Guidance for the fiscal year 2021 since it expects sale trends and overall economy to remain volatile for the next several months.

However, Amin said he remains positive that the company can continue to perform strongly in the coming quarters so long as the economy begins to reopen as planned and jobs start to come back to the market. Digital sales, he said, will contribute significantly to its success as they did in this quarter. 

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