ELF Beauty (ELF) makes magnificence and skincare merchandise that promote at division and specialty shops and on on-line websites. For the extremely brand-conscious but price-sensitive customers of cosmetics, ELF Beauty presents a disruptive vary of main manufacturers at worth costs. This, and the shuttering of its retail operations three years in the past, has helped elevate the corporate to file earnings in latest quarters.
ELF has additionally rapidly gained in recognition because of its plant-based, animal-testing-free merchandise.
ELF Beauty: Strong Revenue, Earnings Record
The Oakland, Calif.-based firm runs 4 manufacturers: ELF Cosmetics, ELF Skin, Well People and Keys. Sales grew for the fifteenth straight quarter within the interval ended September 30. Revenue from its plant-powered merchandise grew 33% to $122.3 million via the corporate’s retail and e-commerce channels.
Earnings efficiency has been a bit of extra uneven. Earnings per share of 36 cents confirmed robust 71% development within the September quarter. But EPS is forecast to drop 5% within the fiscal third quarter, based on FactSet. Cash readily available on the finish of the quarter was $85 million, greater than double the year-ago degree of $42 million.
The cosmetics firm gave an upbeat outlook for the 12 months ending in March 2023. Management now anticipates gross sales development of 22%- 24%, revised upward from 14%-16%.
In comparability, Estee Lauder (EL), a world chief within the “status make-up” class, noticed gross sales fall by 11% to $3.9 billion from $4.4 billion for the September quarter. Earnings of $1.42 a share fell 24% from $1.89. The make-up firm additionally lowered its outlook because of China-related points.
Jefferies analysts imagine that the corporate’s gross sales are extra depending on China’s markets than its friends. ELF Beauty’s 100% cruelty-free coverage retains its merchandise out of China since animal testing is required by regulation there.
Morgan Stanley analyst Dara Mohsenian, JPMorgan’s Andrea Teixiera and Piper Sandler’s Erinn Murphy have an obese score on the inventory. Raymond James’ Olivia Tang charges the inventory an outperform.
Mohsenian and Tang had a worth goal of $50 whereas Teixiera had a decrease goal of $48 for the inventory. Shares of the make-up inventory have surged previous 50 after earnings on Nov. 2. Murphy has a worth goal of 55.
Cosmetics Global Market Growth
According to Precedence Research estimates, the worldwide cosmetics market will develop from $341 billion in 2020 to over $560 billion by 2030. The trade is a extremely aggressive one, with a number of giant caps like L’Oreal (LRLCY) and Estee Lauder and smaller entrants like ELF.
Since 2008, ELF Beauty has been rising its footprint via big-box retailers like Target (TGT) and Walmart (WMT). ELF’s cosmetics additionally promote at drugstores like CVS (CVS) and Rite Aid (RAD).
ELF closed its personal shops simply forward of the pandemic in 2019, shifting its focus to nationwide retailers and e-commerce. Specialty shops like Ulta (ULTA) and Sephora additionally promote ELF make-up. In addition, the corporate has a global presence and sells at Superdrug and Boots within the U.Ok.
In on-line gross sales, Elfcosmetics.com faces competitors from Sephora.com and to a lesser extent from Ulta.com.
Private fairness agency TPG Growth in 2014 acquired a majority stake within the make-up firm. The firm raised $141 million in its IPO in 2016. In 2020, ELF Beauty purchased W3LL for $27 million in money. W3LL has a robust file of being cruelty-free and utilizing plant merchandise.
Makeup Company’s ESG Track Record
ELF Beauty boasts of being an ESG play that’s 100% freed from animal testing and is licensed as cruelty free by People For The Ethical Treatment of Animals (PETA). The make-up enterprise additionally claims a “clear” profile. To declare that, it stays away from greater than 1,600 components reminiscent of parabens, phthalates and sulfates which are restricted by the FDA and the European Union Cosmetic Regulation.
ELF additionally presents 40 Environmental Working Group (EWG) Verified merchandise, the trade customary for “clear and wholesome” magnificence merchandise. According to Chairman and CEO Tarang Amin, the make-up firm reformulated over 350 inventory retaining items, or SKUs, to adjust to its requirements of “clear.”
In August, its third-party manufacturing facility grew to become Fair Trade Certified. Fair Trade requirements “promote sustainable livelihoods and secure working circumstances for manufacturing facility workers, safety of the surroundings and clear provide chain.”
Strong Teen Appeal
ELF’s status and mass worth mixture in addition to its ESG marketing campaign make it significantly enticing to teenagers. A latest Piper Sandler report ranked ELF the highest most well-liked beauty model amongst teenagers, with 16% of whole make-up gross sales for the demographic. Teens most well-liked low cost channels, which noticed 12% of teenybopper spending on make-up in 2022 — a phase on which ELF focuses.
ELF Beauty has a robust presence on TikTook and Twitch. Consumers age 18 to 24 accounted for 32% of tourists to Elfcosmetics.com, adopted by age 25 to 34 at 24% of tourists.
ELF ranks first in IBD’s cosmetics and private care group. The make-up inventory has an ideal Relative Strength Rating of 99 and powerful Composite Rating of 97. Shares are prolonged over a cup-with-handle base and purchase level of 33.73.