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e.l.f Beauty (ELF +18%) is trading sharply higher following its large EPS beat for Q4 (Mar) earnings last night. Revenue rose 71.4% yr/yr to $321.1 mln, well ahead of analyst expectations. Shares for this affordable cosmetics company initially traded lower because ELF's FY25 EPS and revenue guidance was below expectations. However, bullish commentary on the call and some new retail wins have pushed the stock back into positive territory.

• Of note, ELF closed on its acquisition of Naturium on October 4, 2023. So that is partly why sales growth was so robust. Growth will slow in DecQ when ELF laps that deal. FY24 was the first year for ELF to eclipse $1 bln in annual sales, so that was an important milestone. The Naturium deal certainly helped and has boosted its skin care segment. But from where ELF was a few years ago, it has certainly come a long way from that little cosmetics startup.
• The company has been prioritizing three areas where it sees significant runway for growth: color cosmetics, skin care and international.
  • In color cosmetics, ELF continues to significantly outperform the category. In Q4, e.l.f. Cosmetics grew +30% in tracked channels vs a category that was down -3%. ELF ended FY24 with about a 10.5% market share, more than double vs four years ago, and it reached the #2 brand rank in Q4 with a 12.8% share. In Target, its longest standing national retail customer, ELF already is the #1 brand with over a 19% share.
  • In skin care, ELF says it similarly continues to meaningfully outperform the category. In Q4, e.l.f. SKIN grew 38% in tracked channels vs category growth of 2%. It has grown to the #11 brand position vs #14 a year ago. ELF is also pleased with the growth it sees from Naturium.
  • Turning to international, Q4 sales jumped 115% yr/yr, fueled by strength in Canada and the UK. International drove 16% of total sales in Q4 on a much bigger total business vs 13% a year ago.
• Looking ahead, ELF sees an opportunity in color cosmetics to double market share again over the next few years as it replicates its success at Target across other key retailers. And Target is not standing still, ELF expanded its market share at Target to 23% in Q4, growing its business by 70+% for the year. ELF announced last night that it's expanding shelf space for e.l.f. in fall 2024 with CVS, in addition to the previously announced space gains in spring 2024 with CVS and in summer 2024 with Walmart.
• Turning to skin care, ELF is excited about the innovation pipeline it has for e.l.f. SKIN, starting with the in-store launch of Bronzing Drops this summer. With the acquisition of Naturium, ELF explains that it now has two of the fastest growing mass skin care brands. In the US, Naturium is currently available in Target, Amazon and naturium.com. However, ELF announced last night that it will be launching Naturium in Ulta Beauty for the first time in summer 2024.

Overall, investors seem to be focusing more on the hefty Q4 beat and bullish commentary/new retail deals. ELF is very excited about its growth potential in color cosmetics, skin care and international. Briefing.com has been monitoring/profiling ELF since it made its IPO debut a few years ago and it has been impressive. With consumers watching spend, we think ELF fits the moment well as it provides high performance cosmetics at an affordable price.

ELF's results stand in notable contrast to higher end cosmetics brand, Estee Lauder (EL), which recently announced a restructuring and layoffs. We like that ELF is popular with young people and ELF is very savvy at using online media, like TikTok, to promote its brand. A possible TikTok ban, plus an online privacy bill making its way through Congress are concerns but we are confident ELF will adapt as needed.