Cosmetics company e.l.f. Beauty (NYSE:ELF) beat analysts' expectations in Q2 CY2024, with revenue up 50% year on year to $324.5 million. The company expects the full year's revenue to be around $1.29 billion, in line with analysts' estimates. Its non-GAAP profit of $1.10 per share was flat year on year.
Is now the time to buy e.l.f.? Find out by accessing our full research report, it's free.
e.l.f. (ELF) Q2 CY2024 Highlights:
- Revenue: $324.5 million vs analyst estimates of $304.7 million (6.5% beat)
- EPS (non-GAAP): $1.10 vs analyst estimates of $0.84 (30.9% beat)
- The company lifted its revenue guidance for the full year from $1.24 billion to $1.29 billion at the midpoint, a 4% increase
- EPS (non-GAAP) guidance for the full year is $3.39 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $299 million at the midpoint, below analyst estimates of $301.1 million
- Gross Margin (GAAP): 71.3%, in line with the same quarter last year
- EBITDA Margin: 23.9%, down from 34.3% in the same quarter last year
- Free Cash Flow of $495,000, down 98.6% from the previous quarter
- Market Capitalization: $10.25 billion
“We are off to a strong start this fiscal year, delivering 50% net sales growth and 260 basis points of market share gains in Q1,” said Tarang Amin, e.l.f.
e.l.f. Beauty (NYSE:ELF), which stands for ‘eyes, lips, face’, offers high-quality beauty products at accessible price points.
Personal Care
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales Growth
e.l.f. is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 47.8% over the last three years was incredible for a consumer staples business.
This quarter, e.l.f. reported magnificent year-on-year revenue growth of 50%, and its $324.5 million in revenue beat Wall Street's estimates by 6.5%. Looking ahead, Wall Street expects sales to grow 18.8% over the next 12 months, a deceleration from this quarter.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
e.l.f. has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company's free cash flow margin averaged 7.4% over the last two years, better than the broader consumer staples sector.
Taking a step back, we can see that e.l.f.'s margin dropped by 10.2 percentage points during that time. e.l.f.'s two-year free cash flow profile was compelling, but shareholders are surely hoping for its trend to reverse. Continued declines could signal that the business is becoming more capital-intensive.
e.l.f. broke even from a free cash flow perspective in Q2. The company's cash profitability regressed as it was 10.4 percentage points lower than in the same quarter last year, which isn't ideal considering its longer-term trend.
Key Takeaways from e.l.f.'s Q2 Results
We were impressed by how significantly e.l.f. blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was underwhelming. Overall, this quarter was mixed but with some key positives. The market seemed to focus on the negatives, and the stock traded down 5.7% to $177.17 immediately after reporting.
So should you invest in e.l.f. right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.