EPS of $0.33 decreased by 44.3% from previous year
Gross margin of 71.1%
Net income of 19.02M
""Q2 marked yet another quarter of consistent category leading growth. In Q2, we grew net sales 40%, delivered $69 million in adjusted EBITDA, and increased our U.S. market share by 195 basis points."" - Tarang Amin
elf Beauty Inc (ELF) Q2 FY2025 Results: Record 40% Net Sales Growth, Robust International Momentum, and Raised Full-Year Guidance
Executive Summary
Q2 FY2025 delivered category-leading growth for elf Beauty Inc (ELF), underscored by aggressive international expansion and a strengthening value-based brand proposition. Net sales rose 40% year over year to $301.1 million, driven by a 91% increase in international net sales, which now represent 21% of total net sales. The company continued to outperform the color cosmetics category with U.S. market-share gains of 195 basis points in the quarter, supported by strength in Halo Glow and Power Grip franchises and broader digital/loyalty-driven engagement. ELF also achieved a strong profitability trajectory, with gross margin at 71.0% (up ~40 bps YoY) and adjusted EBITDA of $69.0 million (margin 23%). The combination of international momentum, ongoing product innovation, a disruptive marketing engine, and a digital-first go-to-market approach enabled ELF to raise its full-year net sales growth outlook to 28-30% (from 25-27%), with second-half net sales growth expected at 16-20%. Management highlighted strategic investments (NATURIUM integration, ERP transition to SAP, distribution capacity) and capital allocation actions (new $500 million share repurchase program) as key levers for sustaining growth and shareholder value.
Key Performance Indicators
Revenue
301.08M
QoQ: -7.21% | YoY:39.71%
Gross Profit
214.06M
71.10% margin
QoQ: -7.45% | YoY:40.49%
Operating Income
27.92M
QoQ: -44.94% | YoY:-30.52%
Net Income
19.02M
QoQ: -60.00% | YoY:-42.83%
EPS
0.34
QoQ: -60.00% | YoY:-44.26%
Revenue Trend
Margin Analysis
Key Insights
Q2 net sales: $301.1 million, up 40% YoY; QoQ not disclosed in the provided data.
Adjusted EBITDA: $69.0 million; EBITDA margin 23.0%; stronger than internal plan due to timing of expenses.
Net income: $19.020 million; net margin 6.32%.
Financial Highlights
Revenue and profitability highlights:
- Q2 net sales: $301.1 million, up 40% YoY; QoQ not disclosed in the provided data.
- Gross profit: $214.059 million; gross margin 71.10% (up ~40 bps YoY).
- Operating income: $27.918 million; operating margin 9.27%.
- Adjusted EBITDA: $69.0 million; EBITDA margin 23.0%; stronger than internal plan due to timing of expenses.
- Net income: $19.020 million; net margin 6.32%.
- EPS (diluted): $0.33; basic EPS $0.34; weighted average diluted shares ~58.48 million.
- Cash flow: Net cash provided by operating activities $11.168 million; free cash flow $9.545 million; cash at end of period $96.768 million.
- Balance sheet: Total assets $1.237B; total debt $301.266 million; net debt $204.498 million; cash and equivalents $96.768 million; total stockholders’ equity $727.695 million. Net debt to adjusted EBITDA < 1x.
- Key growth drivers cited by management: international expansion (Germany Rossmann launch, 1,600 stores; UK and Netherlands footholds; Sephora Mexico launch), accelerated digital commerce (Beauty Squad loyalty at 5.3 million members; 40% YoY digital consumption growth), and space gains across Target, Dollar General, and Walgreens forthcoming in 2025.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
301.08M
39.71%
-7.21%
Gross Profit
214.06M
40.49%
-7.45%
Operating Income
27.92M
-30.52%
-44.94%
Net Income
19.02M
-42.83%
-60.00%
EPS
0.34
-44.26%
-60.00%
Key Financial Ratios
currentRatio
1.78
grossProfitMargin
71.1%
operatingProfitMargin
9.27%
netProfitMargin
6.32%
returnOnAssets
1.54%
returnOnEquity
2.61%
debtEquityRatio
0.41
operatingCashFlowPerShare
$0.2
freeCashFlowPerShare
$0.17
priceToBookRatio
8.44
priceEarningsRatio
80.75
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management themes from the Q2 earnings call:
- Strategy & Growth Execution: Tarang Amin highlighted the consistency of category-leading growth, noting Q2 net sales growth of 40% and a raised FY2025 net sales growth outlook of 28-30%, driven by international momentum and space gains with major retailers. Mandy Fields emphasized the disciplined cadence of marketing investment (24-26% of net sales) and the impact of Nat uri um’s consolidation on cost structure and margin trajectory.
- International Momentum & Innovation: Amin noted the expansion into 1,600 Rossmann stores in Germany as the biggest international launch to date, with ELF quickly achieving brand leadership in new markets. He cited continued strength in Canada and the UK, and the Mexico Sephora launch where ELF is already the number one cosmetics brand in units and dollars. NATURIUM is expanding globally, with boots in the UK and Space NK distribution, reinforcing a multi-brand international strategy.
- Customer & Channel Diversification: The company plans to extend its reach into Dollar General (subset of doors in November 2024), reinforcing ELF’s mission to democratize access to quality beauty. The management team underscored that ELF’s brand elasticity allows it to compete in value, mass, and prestige segments, reducing channel risk and broadening addressable markets.
- Capital Allocation & Execution: ELF announced a new $500 million share repurchase program and reiterated a go-live timeline for SAP (Spring 2025) to support ERP modernization, balanced by profitability and growth investments. Tarang Amin stressed that the ERP transition would be executed with caution to minimize risk.
"Q2 marked yet another quarter of consistent category leading growth. In Q2, we grew net sales 40%, delivered $69 million in adjusted EBITDA, and increased our U.S. market share by 195 basis points."
— Tarang Amin
"We are pleased to be in a position to raise our outlook across both the top and bottom line. For the full year, we now expect net sales growth of approximately 28% to 30%, up from 25% to 27% previously."
— Mandy Fields
Forward Guidance
Outlook and drivers for the remainder of FY2025:
- Net sales growth: Raised to 28-30% for the full year, up from 25-27% previously, with second-half growth expected at 16-20% on an organic basis. NATURIUM’s contribution to net sales is expected to decelerate in the back half as the company cycles the acquisition in Q3 and its contribution normalizes.
- Gross margin: Expected to be up ~30 bps YoY for the full year (previous guide ~20 bps), benefiting from cost savings, favorable FX, and international price increases; offset by mix with NATURIUM wholesale penetration and higher transportation costs.
- Adjusted EBITDA: Targeting $304–$308 million for FY2025, representing ~29–31% growth, with margins ~20 bps of leverage YoY.
- Marketing/digital spend: Anticipated at 24-26% of net sales in 2025, with cadence balanced across quarters and some leverage in marketing in Q4 versus the prior year’s elevated marketing in Q4.
- Risks and considerations: Potential volatility in track channels remains a consideration given ELF’s diversified brand portfolio; currency and freight costs could affect margins; tariff exposure is monitored, with management indicating no assumed tariff impact in FY2025. ERP implementation risk is being mitigated via extensive testing and staged go-live, with SAP slated for Spring 2025.
- Key factors for investors to monitor: pace of international expansion (new market launches and partner performance), effectiveness of the NATURIUM integration in retail channels, progress of WWE and Space NK/Boots distribution, the ROI on marketing and digital investments, and the cadence of store-level share gains with Target, Walgreens, and Dollar General.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ELF Focus
71.10%
9.27%
2.61%
80.75%
PG
52.40%
26.20%
9.05%
21.29%
CL
60.70%
22.90%
5.94%
26.78%
COTY
66.70%
16.10%
0.63%
63.98%
KVUE
58.90%
17.90%
0.57%
148.17%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment thesis: elf Beauty is positioned as a high-growth, high-margin consumer brand with a digitally-native framework, multi-channel distribution, and a strong international growth runway. The combination of 40% Q2 net sales growth, a resilient 71% gross margin, and a raised FY2025 guidance (28-30% topline growth) signals durable outperformance relative to peers in the beauty space. Management’s focus on international expansion (Germany, UK, Mexico), retail space gains (Target, Walgreens, Dollar General), and the Nat uri um skincare platform creates a diversified revenue engine with expanding addressable markets. The ERP upgrade and a disciplined marketing cadence should support scalable growth and cash flow generation. The company’s capital allocation (new $500m buyback) and a flexible approach to balancing margin expansion with investments further support long-term value creation.
Key risks include potential volatility in track-channel data, macro consumer softness in color cosmetics, integration risks related to NATURIUM, tariff exposure, and execution risk around ERP implementation. If ELF can convert the international demand into sustainable market shares, maintain elevated ROIs on marketing, and manage costs effectively, the stock could sustain premium multiples consistent with a high-growth consumer brand with strong brand equity and first-mover advantages in value and skincare segments.
Key Investment Factors
Growth Potential
Proven, multi-channel growth engine with category-leading share gains in the U.S. and expanding international footprint (Germany, Netherlands, Italy, Mexico, UK). Balanced portfolio across mass, prestige-inspired segments, and skincare via NATURIUM. Further upside from new retailer placements (Target, Walgreens, Dollar General) and deeper international distribution.
Profitability Risk
Category cyclicality in color cosmetics; dependence on successful expansion of NATURIUM and integration risk; potential margin pressure from mix (NATURIUM wholesale) and higher transportation costs; track channel volatility given data-source fragmentation; tariffs and FX exposure; ERP implementation risk associated with SAP go-live.
Financial Position
Strong liquidity with cash on hand ~$96.8m and net debt to Adjusted EBITDA <1.0x. Solid balance sheet with total assets ~$1.238B and total equity ~$727.7m. Ongoing cash generation supports capex, distribution expansion, share buybacks, and potential M&A or brand acquisitions (NATURIUM as a platform).
SWOT Analysis
Strengths
Q2 net sales grew 40% YoY with 91% international growth, representing 21% of net sales.
71% gross margin with a ~40 bps YoY improvement and strong margin trajectory aided by FX and international pricing.
Leadership in market share gains: US color cosmetics share up 195 bps in Q2; top-2 position in mass and prestige segments.
Diverse, digitally enabled go-to-market: Beauty Squad loyalty program at 5.3 million members; 20% digital consumption share in Q2.
Strategic international expansion (Germany Rossmann launch; Sephora Mexico, UK & Netherlands presence) and sizable opportunities ahead.
NATURIUM acquisition broadened SKU breadth and skincare growth with ongoing distribution expansion (Boots UK, Space NK).
Strong balance sheet and liquidity, with net debt to EBITDA <1x; continued buyback authorization ($500m).
ERP upgrade to SAP planned for Spring 2025 to support scaled operations and global expansion.
Weaknesses
Adjusted SG&A as a percentage of net sales elevated to 53% in Q2, partially due to NATURIUM integration and investment in marketing/digital initiatives.
Reliance on new international channels and acquisitions introduces execution risk and potential margin volatility.
Track-channel data fragmentation reduces visibility into near-term performance; management has shifted focus toward annual guidance rather than quarterly track-channel specifics.
Opportunities
Dollar General expansion to broaden rural/underserved customer access to ELF, expanding domestic addressable market.
Continued international expansion (Germany, Mexico, UK, Canada) with new store formats and partnerships; Sephora Mexico already self-identified as leader in units and dollars.
Skincare expansion through NATURIUM and strategic skincare campaigns (Divine Skintervention) to gain share in a white space area.
Sustained innovation pipeline with six of the top 10 new items in color cosmetics; expansion of core franchises Power Grip and Halo Glow.
Leveraging robust loyalty program data to drive higher AOV, frequency, and retention.
Threats
Short- to medium-term category softness in color cosmetics (Q2 color cosmetics down around 5% industrywide) could weigh on near-term topline dynamics.
Competition intensifies in value and mass segments; high marketing spend could compress margins if ROIs normalize.
Tariff risk and FX volatility could impact gross margins/inputs; ELF has noted potential tariffs but expects FY2025 to be unaffected.
ERP implementation risk around transition to SAP; execution remains a focus to avoid operational disruption.
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