e.l.f. Beauty stock dives 26% on lowered outlook amid 'soft' January trends

Investing.com-- ELF Beauty (NYSE:ELF) reported third-quarter revenue that surpassed analyst expectations, but the cosmetics company's shares sank 26% after it lowered its full-year guidance citing softer trends in January.

The Oakland-based company posted revenue of $355.3 million, beating the analyst consensus of $329.03 million and marking a 31% increase YoY.

However, adjusted earnings per share came in at $0.74, falling short of the $0.77 estimate.

e.l.f. Beauty's Chairman and CEO Tarang Amin stated, "I'm proud of the e.l.f. Beauty team for delivering another quarter of consistent, category-leading growth. In Q3, we grew net sales 31% and gained 220 basis points of market share in the U.S."

Despite the strong quarter, the company lowered its fiscal 2025 outlook. e.l.f. Beauty now expects full-year revenue of $1.3-1.31 billion, down from its previous forecast of $1.34 billion. The company also reduced its earnings per share guidance to $3.27-$3.32, below the analyst consensus of $3.61.

Chief Financial Officer Mandy Fields explained, "Given softer than expected trends in January, we are taking a prudent approach and lowering our outlook for the final quarter of our fiscal year."

According to Stifel analysts, the reduced full-year guidance implies Q4 sales growth of just around 1%, a far cry from the consensus projection of 19%, and adjusted EBITDA roughly 15% below consensus.

"Our take is that while F4Q25 sales guidance seems conservative, company growth and market share gains are slowing," Stifel analysts noted.

"We see ELF shares as range-bound near-term pending more sales datapoints in US scanner data," they added, trimming their price target on the stock to $85 from $105. 

Separately, Piper Sandler analysts said in a note they are "continuing to defend ELF and struggle to not be buyers at current levels."

"Visibility is limited, and it's getting tougher to model, which we do believe justifies a bit of a valuation reset," they added.

ELF's gross margin improved by 40 basis points to 71% in the third quarter, driven by favorable foreign exchange impacts and cost savings.

However, the adjusted EBITDA margin contracted to 19% from 22% in the same period last year.

As of December 31, 2024, e.l.f. Beauty had $73.8 million in cash and cash equivalents and $154.1 million in long-term debt.