Q3 2025 Earnings Summary
- Strong International Growth and Expansion Opportunities: e.l.f. Beauty's International net sales grew by 66% in Q3, fueled by expansion into new markets and strong performance in existing ones. The company holds top 3 rankings in new markets like Rossman Germany, Etos Netherlands, and Douglas Italy, reflecting significant global consumer demand. e.l.f. plans to continue expanding internationally, capitalizing on global engagement and consumer demand, which provides a significant runway for growth.
- Unique Competitive Advantages Driving Market Share Gains: e.l.f. Beauty's unmatched value proposition of delivering prestige-quality products at accessible prices is a key competitive advantage that is difficult for competitors to replicate. The company has a track record of building enduring product franchises and has more than doubled its market share in the last 3 years. Its strong innovation engine, combined with disruptive marketing and consumer engagement, positions e.l.f. for continued market share growth in the beauty industry.
- Strong Performance Across Categories, Including Skin Care Growth: Despite challenging market conditions, e.l.f. Beauty has seen broad strength across all segments, with massive share gains in Color Cosmetics and Skin Care. The Skin Care segment, including e.l.f. Skin and Naturium, continues to grow at a faster pace, representing a significant growth opportunity. The company's innovation and consumer engagement strategies are driving continued growth and market share gains across all categories.
- Lowered sales guidance due to softer demand: e.l.f. Beauty has lowered its net sales outlook for the final quarter of the fiscal year to a range of minus 1% to plus 2%, citing softer consumption trends starting in January. This decline is attributed to factors such as a 5% decrease in the mass cosmetics category in January, lower social media conversation around beauty, and initial slower performance of some new product launches for Spring 2025.
- Negative consumption trends and potential retailer impact: In January, e.l.f. experienced a decline in U.S. consumption, including a couple of weeks of negative scanner data, indicating a slowdown. Analysts expressed concerns about potential retailer destocking due to softer consumption trends, though management stated they have not observed retailer destocking yet.
- Challenges with new product launches and tough comparisons: Some of e.l.f.'s new product launches for Spring 2025 have started off slower than expected. Additionally, the company is lapping the prior year's highly successful launch of its lip oil, creating a tough comparison that may impact current sales performance.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +31% (from $270,943K to $355,320K) | Total Revenue grew by 31% YoY, driven by robust market demand and broad-based channel performance—including digital and retailer contributions—that built on prior period sales improvements and product mix enhancements. |
Operating Income (EBIT) | +10% (from $31,836K to $35,085K) | Operating Income increased by 10% YoY, reflecting improved operating leverage and gross margin benefits from higher net sales, though the gains were partly offset by rising SG&A expenses that had already begun growing in the previous period. |
Net Income | +28% (from $26,888K to $34,379K) | Net Income rose by 28% YoY as enhanced operating performance, improved efficiency, and potentially lower effective tax rates amplified profitability despite higher non-operating costs—an extension of positive trends seen in earlier periods. |
SG&A Expenses | +36% (from $160,121K to $218,220K) | SG&A Expenses surged by 36% YoY, primarily due to increased marketing and digital investments along with higher operational outlays, a strategic commitment that was already emerging in the previous quarter. |
Interest Expense | Shift from a net interest gain of –$3,985K to an expense of $18,379K | Interest Expense reversed sharply, moving from a net gain to a significant expense due to increased borrowings and higher interest rates, marking a stark contrast to the previous period's favorable financing conditions. |
Depreciation & Amortization | –40% (declined from $11,936K to $7,096K) | Depreciation and Amortization declined by 40% YoY, indicating either lower recent capital investments or changes in amortization schedules relative to the previous period’s higher charges, likely reflecting a shift in asset mix. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales Growth | FY 2025 | 28% to 30% | 27% to 29% | lowered |
Gross Margin | FY 2025 | Increase by ~30 basis points | Increase by 40 basis points | raised |
Adjusted EBITDA | FY 2025 | $304 million to $308 million | $289 million to $293 million | lowered |
Marketing and Digital Investment | FY 2025 | 24% to 26% of net sales | 24% to 26% of net sales | no change |
Second Half Net Sales Growth | FY 2025 | 16% to 20% | 14% to 16% | lowered |
Net Sales Growth | Q4 2025 | no prior guidance | -1% to +2% | no prior guidance |
Adjusted EBITDA Growth | FY 2025 | no prior guidance | 23% to 25% | no prior guidance |
Tariff Impact | FY 2025 | no prior guidance | No impact from announced 10% incremental tariffs | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Sales Growth | Q3 2025 | 16% to 20% year-over-year | 31.2% year-over-year (from $270.943MTo $355.32M) | Beat |
Gross Margin (yoy) | Q3 2025 | Increase by ~30 basis points year-over-year | Increased by ~40 basis points (from ~70.9% to ~71.3%) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International Growth and Expansion Opportunities | Consistently emphasized robust global expansion, including new market launches, significant percentage growth in international sales, disciplined rollout strategies and partnerships (e.g., Q4 2024 , Q1 2025 , Q2 2025 ) | Continued strong international expansion with impressive year‐over‐year growth rates, new market entries (e.g., Rossman in Germany, Sephora in Mexico) and optimism despite a noted slight Q4 slowdown due to cadence of launches | Steady positive momentum with minor caution around launch cadence indicating overall robust global expansion |
Consistent Market Share Gains in Color Cosmetics and Skin Care | Repeatedly showcased significant share gains, market leadership in color cosmetics and steady improvements in skincare (Q4 2024 , Q1 2025 , Q2 2025 ) | Maintained record market share gains with notable increases in both units and dollar share across channels, further reinforcing leadership positions | Consistently positive with persistent strong performance across key segments |
Effective Marketing Investments and Enhanced Brand Awareness | Highlighted successful, disruptive campaigns, increased marketing investments generating strong ROIs and substantial gains in unaided brand awareness (Q4 2024 , Q1 2025 , Q2 2025 ) | Continued emphasis on high-impact campaigns, significant digital and marketing investments, and further growth in brand awareness, strengthening consumer engagement | Sustained and effective strategic marketing with consistent high returns and broad demographic appeal |
Softening Consumer Demand and Retail Channel Challenges | Previously acknowledged softer trends in selective consumer spending and mixed channel performance with cautious remarks in Q1 and Q2 2025 ( ) while Q4 2024 did not address this topic | Noted explicit challenges such as softer overall consumption trends, reduced social conversation and specific channel softness (e.g., at Target and Ulta), yet maintained confidence in channel productivity | Persistently cautious sentiment with more pronounced current period challenges despite channel resilience |
New Product Launch Challenges and Innovation Execution | Previously praised for rapid, consumer‐driven innovation, successful “holy grail” product launches and franchise expansions with minor execution hurdles (Q1 2025 , Q2 2025 , Q4 2024 ) | Reported that certain Spring 2025 launches started slower than anticipated due to lower social buzz and delayed retail resets, though overall confidence in a robust innovation pipeline remains | Stable but slightly mixed, as execution challenges emerge while long-term innovation confidence persists |
ERP Implementation and Operational Risks | Consistently discussed a cautious ERP transition with extended timelines, extensive testing and risk mitigation measures to avoid disruptions (Q1 2025 , Q2 2025 , Q4 2024 ) | Continued investment in the ERP transition (to SAP) with focus on infrastructure expansion, while no specific operational risks were highlighted, suggesting smooth progress | Steadily managed with proactive risk controls and measured rollout plans |
Tariff and Supply Chain Vulnerabilities | Addressed through strategic supplier diversification, lessons from 2019 tariffs and mitigating actions such as favorable FX and selective pricing (Q1 2025 , Q2 2025 , Q4 2024 ) | Noted the impact of new incremental tariffs on China imports with plans to address in FY 2026 and further diversification outside China, echoing previous successful strategies | Managed risk with proactive diversification; a slight increase in focus on tariffs compared to before |
Margin Expansion versus Operating Leverage Constraints | Emphasized margin expansion via cost savings, favorable mix and incremental price increases alongside higher marketing and digital investment levels constraining leverage (Q1 2025 , Q2 2025 , Q4 2024 ) | Continued focus on margin improvement through cost controls and improved mix even as significant investments in SG&A and digital marketing persist, with a raised gross margin guidance | Balanced outlook with continued margin expansion efforts offset by planned high-investment levels |
Slowing Growth in Core Segments | Previously acknowledged subtle signs of slowing growth in the broader mass cosmetics category and promotional challenges, while noting overall market share gains (Q4 2024 , Q1 2025 , Q2 2025 ) | More candid discussion of slowing growth factors including category declines, reduced social engagement, and softer product launch traction (e.g., post-promotional effects and external factors such as wildfires) | Increasing caution as recurring headwinds suggest a need to balance short-term challenges with long-term strategic strengths |
-
Guidance Amid January Softness
Q: How long will the January slowdown last?
A: Tarang explained that they are taking a more cautious stance due to a slow January, where the category was down 5%. Social conversations dropped over 20%, attributed to the L.A. wildfires and TikTok uncertainty. While hoping trends improve with upcoming marketing activations and product resets, they adjusted Q4 guidance assuming conditions remain challenging in the short term. -
U.S. Consumption Trends and Market Share
Q: What's happening with U.S. consumption and market share?
A: In Q3, U.S. consumption grew about 12% in tracked channels. January saw a slowdown with weeks of negative scanner data. Despite this, e.l.f. gained 90 basis points of market share in January, outperforming competitors . They continue to grow share even in a soft market, reflecting strong positioning . -
International Growth Prospects
Q: How is international business performing?
A: International business grew 66% in Q3. They aren't facing the same headwinds internationally as in the U.S.. After launching in Germany, the Netherlands, and Italy, they've maintained a top 3 rank with these retailers. They expect continued expansion into additional countries and are in discussions with many retailers. -
Gross Margin Outlook with Naturium Expansion
Q: How does Naturium's expansion affect gross margins?
A: Despite Naturium's impact on margins, they raised gross margin guidance from 30 basis points previously to 40 basis points for the year. They are pleased with Naturium's performance and had planned for its effect on margins. -
SG&A Leverage and Cost Flexibility
Q: Can you discuss SG&A leverage and cost flexibility?
A: Significant SG&A leverage is expected in Q4, particularly in marketing and digital, with spending decreasing from 34% last year to an implied 24% to 26% for the year. While there's flexibility to reduce costs if needed, the focus remains on investing in people and infrastructure to capitalize on growth opportunities . -
Marketing Strategy Adjustments
Q: How are you adjusting marketing strategies amid softness?
A: They don't plan major shifts but will continue marketing activations for new items and core franchises. Expecting social conversations to normalize, they believe this will aid promotions. They considered increasing spend but decided to maintain current levels due to cautious consumer sentiment, focusing on strong ROI. -
Competitive Landscape and Innovation
Q: What's your view on competition and innovation?
A: The cosmetics category is highly competitive, with 1,900 brands tracked by Nielsen. Few can scale; e.l.f. is one of only 4 brands with over $850 million in retail sales. They believe their competitive advantages, like delivering prestige quality at accessible prices, are unique and difficult to replicate. They've more than doubled market share in the last 3 years. -
Naturium Performance and Expansion
Q: How is Naturium performing and expanding?
A: Naturium continues to show growth, especially with expanded distribution in Ulta. Currently available in only 2 major retailers, Target and Ulta, there is significant white space for expansion. They've seen progress in international markets like Boots in the UK and plan further distribution expansion.