Q2 2025 Earnings Summary
- Strong International Expansion and Immediate Market Leadership: e.l.f. Beauty is achieving significant international growth, entering new markets such as Germany with Rossman and Mexico with Sephora. In Germany, e.l.f. quickly ascended to Rossman's #1 cosmetics brand in the stores they entered. In Mexico, they launched in Sephora and are already the #1 cosmetics brand there. This demonstrates the brand's global appeal and suggests substantial international growth potential.
- Expanded Distribution in the U.S. Leading to Continued Market Share Gains: The company is increasing shelf space and distribution agreements with major U.S. retailers, including Target, Walgreens, CVS, and entering Dollar General. For instance, they are expanding from 2-3 feet to 6-10 feet of shelf space in CVS and gaining more space in Walgreens in the spring. Entering Dollar General allows e.l.f. to tap into underserved markets, particularly in rural areas, while offering their full assortment of best-selling products. These expansions are expected to drive further market share gains in the U.S. market.
- Effective Marketing Investment Driving High ROI and Innovation Leadership: e.l.f. is maintaining marketing investments at 24% to 26% of net sales, with ROI that is multiples above benchmarks. Their marketing efforts are fueling brand awareness and driving sales growth. Moreover, the company holds 6 of the top 10 new product launches in mass cosmetics , showcasing their powerhouse innovation and ability to meet consumer demands, which supports ongoing growth and strengthens their market position.
- The upcoming ERP implementation in spring 2025 poses significant execution risks. Executives acknowledge that ERP transitions are challenging and have caused issues for many companies. They emphasize the need for extensive testing, preparation, and training to minimize risk before going live.
- Softness in track channel trends and lack of transparency may indicate underlying issues. The company is not providing specific guidance around track channels. If performance in these channels continues to be worse or softer than expected, it could negatively impact growth projections.
- The overall color cosmetics category is experiencing a slowdown, with a reported decline of 5% in Q2. This deceleration may impact the company's growth potential if the trend continues, despite management's confidence in gaining market share.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International expansion | Grew 91% YoY in Q1 2025, ~16% of sales; expanded in Germany, U.K., Canada; disciplined rollout strategy. In Q4 2024, grew 115% YoY, #1 brand in Italy & Netherlands, entered Latin America. In Q3 2024, strong UK/Canada growth, #1 in Italy. | Grew 91% YoY, now 21% of total net sales; continued expansion in Europe (Rossmann in Germany) and success in Canada/U.K.. | Consistent focus and bullish sentiment. Expansion remains a core growth driver. Large future impact likely as share grows internationally. |
Market share gains | Q3 2024: +305 bps in color cosmetics, #1 brand at Target. Q4 2024: Surpassed L’Oréal for #2 rank, #1 in unit share. Q1 2025: 22nd straight quarter of gains, now #2 mass brand in dollar share. | 23rd consecutive quarter of gains, +195 bps in U.S. color cosmetics; outpacing category by 20x in Canada and 7x in U.K.. | Remains a core strength. Sentiment unchanged—still outpacing category. Key for future brand momentum and retailer expansions. |
Marketing ROI | Q3 2024: Extremely high ROI, increasing spend to 24% of net sales. Q4 2024: Above benchmarks, marketing at ~25% of net sales. Q1 2025: ROIs multiple times industry norms, brand awareness up from 13% to 33%. | Cites ROIs “well above industry benchmarks,” invests ~24–26% of net sales; fueling brand awareness and top-line growth. | Continuously strong. Management remains bullish on returns from marketing. Key to driving brand awareness and sales. |
Color cosmetics category slowdown | Q3 2024: No explicit slowdown mentioned; e.l.f. outperformed with 46% growth. Q4 2024: Category down 3%, e.l.f. up 30%. Q1 2025: Low single-digit decline in mass color category, but e.l.f. gained 260 bps share. | Category declined 5% vs 1% in Q1, but e.l.f. still gained share. Leadership sees historical rebounds, remains confident. | Softness acknowledged but e.l.f. continues to outperform. Sentiment still confident despite macro category challenges. |
ERP transition | Q3 2024: Listed as a key initiative for infrastructure. Q4 2024: Noted as a cash priority for FY25. Q1 2025: Timeline shifted from fall to spring for further testing. | Go-live planned for spring 2025, extensive testing to minimize risk. | Ongoing implementation. Cautious execution to avoid disruption. Potentially big future operational impact once live. |
Tariffs | Q3 2024: Pricing reserves in place; diversifying supply chain. Q4 2024: Tariff exposure offset by international growth. Q1 2025: Potential for FY26 impact; reliance on China reduced to <80%. | Tariffs not expected to impact FY25. Could arise in 2026. e.l.f. has a “playbook” ready; 80% of products from China, down from 99%. | Consistent caution. Positioned to manage future tariff risk via diversification, pricing, and supplier concessions. |
Dollar General distribution | No prior mentions in Q3 2024, Q4 2024, or Q1 2025. | Announced rollout to a subset of Dollar General stores, special endcap presentation; expected to start Nov. 2024. | New topic. Expands reach to underserved rural areas. Potential incremental sales and brand awareness. |
Softness in track channel trends | Q3 2024: Expected ~20% Q4 growth in tracked channels, no mention of softness. Q4 2024: No mention of softness. Q1 2025: No mention, highlighted strong tracked-channel growth. | +16% vs. +20% expected; attributed to category slowdown and tough comps. | New softening sign. e.l.f. still gains share but acknowledges slower tracked growth. Maintaining confidence in full-year outlook. |
Supply chain disruptions | Q3 2024: Shipping from China to Europe, mostly stable. Q4 2024: Red Sea issue raised shipping costs. Q1 2025: Increased inventory, offset container delays. | No explicit mention of disruptions, though inventory timing from China and diversification are noted. | Less direct commentary in Q2. Ongoing diversification and prior mitigation efforts remain in place. |
Naturium acquisition | Q3 2024: Expanded e.l.f.’s skincare footprint, strong synergy potential. Q4 2024: Contributed ~17 points to net sales growth; launching at Ulta. Q1 2025: 16-point growth contribution, strong momentum. | Continued brand strength; expanded to Boots (UK) and Space NK. Contributing to SG&A; expected to moderate in 2H as they lap acquisition. | Remains positive. Complementary brand fueling skincare expansion. High visibility for future growth. |
Margin expansion | Q3 2024: +350 bps in gross margin, strong EBITDA leverage. Q4 2024: +180 bps gross margin, guided +10 bps in FY25. Q1 2025: +80 bps gross margin, guided total +20 bps for FY25. | Q2 2025 gross margin +40 bps YoY, updated FY25 outlook +30 bps; balanced by Naturium mix and transport costs. | Steady improvement. Still rising despite mix and costs. Positive sentiment on continued margin gains. |
Slowing digital and core segment growth | Q3 2024: Digital up ~100%, no slowdown cited. Q4 2024: Digital +90% for FY24, not flagged as slowing. Q1 2025: No sign of digital slowdown, +40% digital consumption. | Digital grew ~40% on top of 75% last year; mild core softness in track channels but digital not flagged as slowing. | Not broadly cited as slowing. Track channel softness noted, but digital still strong. No major sentiment shift. |
Guidance uncertainty | Q3 2024: Raised guidance, no explicit uncertainty. Q4 2024: Cautious approach, “a quarter at a time”. Q1 2025: Balanced stance, limited long-range visibility. | Explains smaller beats & raises as brand grows; no U.S. track channel outlook given diversification. | Ongoing caution. Consistent mention of prudent forecasts due to macro and category variability. |
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Tariffs Impact
Q: How are you preparing for potential future tariffs?
A: Management is confident in their ability to navigate potential future tariffs. In 2019, when they faced 25% tariffs, they offset the impact through cost savings, supplier concessions, favorable foreign exchange, and selective pricing increases . Currently, about 80% of their products come from China, down from 99%, and they've diversified production . Any new tariffs wouldn't impact FY '25 but could in 2026, giving them time to prepare . -
Growth Outlook and Guidance
Q: Can you elaborate on your growth expectations and guidance approach?
A: Management stated their guidance strategy remains consistent, focusing on annual guidance and taking it a quarter at a time . They acknowledged that as the company grows larger, the magnitude of beats and raises may be smaller due to the law of big numbers . They're confident in achieving their outlook of 28% to 30% growth for the year, driven by market share gains, pipeline associated with space expansions, and continued international momentum . -
Dollar General Expansion
Q: Why are you expanding into Dollar General now, and what is the impact on brand equity?
A: The expansion aligns with their mission to make the best of beauty accessible to every eye, lip, and face . Dollar General's strategy of serving underserved consumers fits perfectly, as 80% of their stores are in rural areas . They're displacing a couple of different brands and are excited about the unique presentation Dollar General is offering . Management believes the e.l.f. brand is highly elastic and can thrive in both value and prestige channels without impacting brand equity . -
Category Slowdown and Performance
Q: How are you performing amid the slowing category growth?
A: Despite the category being down 5% in Q2 , management remains bullish on the color cosmetics and skincare categories . They've achieved 23 consecutive quarters of net sales growth, driven by their value proposition, innovation, and disruptive marketing . They're confident in continuing to outperform the market and gain share regardless of category fluctuations . -
Inventory Levels and ERP Implementation
Q: Can you discuss your current inventory levels and ERP implementation plans?
A: Management feels confident about their inventory position, stating they have what they need to support demand . They noted that there is typically a buildup in Q3 due to spring innovation and pipeline needs . Regarding ERP implementation, they plan to go live on SAP in the spring of 2025 but will proceed only when fully prepared to minimize risk . -
International Expansion
Q: What progress are you making internationally, and what are the growth plans?
A: International growth has been strong at 91%, representing 21% of their business this quarter . They recently entered Sephora Mexico, becoming the #1 brand in both units and dollars . They're adding teams in the UK and other markets and expanding distribution capacity to support global demand . -
Gross Margin and Mix Impact
Q: How is product mix affecting your gross margin?
A: Gross margin improved by 40 basis points this quarter, and they've raised the outlook to a 30 basis point improvement for the year . The mix effect was negative due to Naturium moving into wholesale channels, which was planned and expected . International growth is beneficial as it's not subject to tariffs, leading to better gross margins . -
Innovation Pipeline
Q: What are your plans for future product innovation?
A: Management is excited about their innovation, having 6 of the top 10 new item launches in all of color cosmetics this year . They plan to focus on core franchises like Power Grip Primer and Halo Glow Liquid Filter, reenergizing them with new offerings . A full slate of innovation is coming in the spring . -
Sell-in vs. Sell-out Dynamics
Q: Are you seeing any inventory destocking or sales discrepancies?
A: Management is not seeing any sell-in or sell-out discrepancies . As the most productive brand carried by retailers, they require frequent reordering to keep up with demand . -
Naturium Performance
Q: How is Naturium performing at Ulta, and what are the expansion plans?
A: Naturium is showing strong growth with a successful launch at Ulta Beauty, offering a full assortment in facial skincare and body . They are exploring further expansion opportunities both in the U.S. and internationally, recently entering Boots in the UK and Space NK .