Story Stocks^®

e.l.f Beauty (ELF -19%) is trading sharply lower following its Q3 (Dec) earnings miss last night. This affordable cosmetics company did post impressive revenue, up 31.2% yr/yr to $355.3 mln, which was much better than expected. It also lowered FY25 guidance, but with just one quarter left, it was basically a guide down for Q4 (Mar). ELF expects MarQ sales to range from -1% to +2%.

• ELF is unlike typical cosmetics companies, not only for its lower price points, but also because it relies heavily on social media video platforms like TikTok. Influencers and customers post lots of videos providing makeup ideas and advice for young women. Unfortunately, ELF said there has been lower social conversation around beauty. Consumer mindshare has been focused elsewhere, including wildfires in LA and uncertainty around the TikTok platform.
• In terms of why it issued weak guidance for MarQ, ELF explained that consumption trends at the start calendar 2025 have been softer than expected. In addition to the online video trends mentioned above, ELF believes this decline is reflective of consumers stocking up in a highly promotional December. Also in MarQ, ELF will be lapping the global launch of its viral Glow Reviver Lip Oil, which was ELF's biggest launch in calendar 2024. ELF benefitted from higher shipments in MarQ last year as retailers built inventory ahead of the big launch.
• Another factor for the weak guidance is that initial reads for a couple of its new product launches for spring 2025 have started off slower than expected. It is still in the early days of marketing activations for these launches. Over the next few weeks, ELF's retailers will add spring innovation to their stores and refresh ELF's in-store presentation, including expanded space in Target and Walgreens. These results are still in progress, but the early reads did impact the guidance.
• The silver lining is that ELF does not believe Q4 (Mar) is indicative of the underlying run rate of its business, and it remains confident it can deliver market-leading growth. Looking ahead, ELF remains focused on four areas with significant runway for growth: digital, color cosmetics, skin care and international.

What is interesting is that Estée Lauder (EL) sold off on Tuesday after also providing weak guidance for MarQ. That seemed more understandable given the value conscious consumer as it is positioned more on the prestige end of the spectrum. In fairness, the two are also different because EL has high exposure to China, which has been weak. Hopefully, ELF's troubles are just near term in nature and maybe consumers did stock up in December given all the discounting. Nevertheless, we were surprised to see cosmetics names at both end of the spectrum issue weak guidance.