Hailey Bieber’s cosmetics line Rhode is expected to increase E.l.f. Beauty‘s annual sales by $200 million this fiscal year, but its new parent company’s full-year guidance still fell below expectations, leading its stock to plunge 29% Wednesday.
E.l.f., which declined to release full-year guidance last quarter, is expecting full-year revenue to be between $1.55 billion and $1.57 billion, implying 18% to 20% sales growth. That’s far below the $1.65 billion analysts were expecting, according to LSEG.
In an interview with CNBC, CEO Tarang Amin said Rhode, which the company acquired earlier this year in a blockbuster $1 billion deal, is expected to increase its annual sales by $200 million this fiscal year and by $300 million on an annual run rate basis.
Rhode’s expected contribution to sales represents about 13% of its revenue forecast, highlighting just how important the deal is to E.l.f’s future as its outsized growth continues to moderate. It shows that E.l.f. needs Rhode to help it grow in the quarters ahead and without the acquisition, its potential for higher revenue could have been far slimmer.
On the profitability side, E.l.f. expects full-year adjusted earnings per share to be between $2.80 and $2.85, far below expectations of $3.58, according to LSEG.
In addition to guidance, E.l.f. missed revenue estimates but beat on earnings in its fiscal second quarter results.
Here’s how the beauty company did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: 68 cents adjusted vs. 57 cents expected
- Revenue: $344 million vs. $366 million expected
The company’s reported net income for the three-month period that ended Sept. 30 was $3 million, or 5 cents per share, compared with $19 million, or 33 cents per share, a year earlier. Excluding one-time items related to stock-based compensation and other non-recurring charges, E.l.f. saw earnings of 68 cents per share.
Sales rose to $344 million, up about 14% from $301 million a year earlier.
Amin blamed the misses on revenue and guidance on the fact the company didn’t release guidance last quarter, which he said can impact consensus estimates.
“We actually believe both the sales that we delivered, as well as the guidance on net sales, are quite strong,” he said.
E.l.f., which primarily sources its makeup from China, has seen its profitability crushed by President Donald Trump’s new tariffs. During the quarter, its net income fell by a staggering 84% while the company said its gross margin fell by 1.65 percentage points, primarily driven by higher tariff costs.
Amin said the second quarter is expected to see the greatest hit from tariffs and the impact is expected to moderate sequentially from there.
“In response to tariffs, we took our prices up $1, that was effective Aug. 1 so you’re seeing tariff impact without pricing in this quarter,” Amin said. “In the second half of the year, gross margin will actually improve sequentially.
In the absence of major product launches from its namesake brand, which Amin said are currently in the works, Rhode is E.l.f.’s primary growth driver and for now, the business is growing by about 40% year over year, he said.
It launched in Sephora stores nationwide in September and was the biggest brand launch the retailer has seen in North America in its history, Amin said.
“It was two and a half times bigger than the number two, [Sephora’s] second biggest launch ever, so it’s performed extremely well,” Amin said. “We continue to see incredible potential for growth, not only in North America where we just launched and in the UK where we’re about to launch, but also internationally. … We definitely see global potential for that brand and see it being much bigger than it is today.”
