ELF Q2 Deep Dive: Margin Headwinds and Tariff Pressures Offset Brand Momentum

Cosmetics company e.l.f. Beauty (NYSE:ELF) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 9% year on year to $353.7 million. On the other hand, next quarter’s revenue guidance of $328.2 million was less impressive, coming in 8.5% below analysts’ estimates. Its non-GAAP profit of $0.89 per share was 6.3% above analysts’ consensus estimates.

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StockStory’s Take

e.l.f. Beauty’s second quarter saw continued sales growth and strong market share gains, but the market responded negatively to the results amid concerns over margin pressure and tariff-related cost increases. Management emphasized that volume growth, new product launches, and ongoing strength in both domestic and international markets supported the quarter. CEO Tarang Amin highlighted successful innovation efforts, stating, “Our Halo Glow Skin Tint was our top-selling cosmetics product in Q1,” and noted share gains across all key segments. However, CFO Mandy Fields acknowledged that gross margins declined due to incremental tariff costs, despite positive currency effects and ongoing cost management.

Looking forward, management’s guidance was notably cautious due to tariff uncertainty and its impact on profitability. The company is waiting for clearer tariff outcomes before issuing a full-year outlook, with Fields stating, “There continues to be a broad range of potential outcomes.” The integration of Rhode, the recently acquired beauty brand, is expected to contribute to top-line growth, but management flagged the risk of further margin compression as higher tariff costs flow through inventory. Management is also closely monitoring consumer response to recent price increases and the elasticity of demand.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to new product momentum, international expansion, and the successful integration of recent acquisitions, but called out tariffs as a significant drag on margins.

• Tariff-driven margin decline: Gross margin fell year-over-year, primarily due to higher tariff rates on imported products from China. Management noted that for a portion of the quarter, some inventory was subject to a 170% tariff rate, significantly affecting cost of goods sold.
• Innovation-led share gains: New product launches, such as the Halo Glow Skin Tint with SPF 50 and DIY Halo Gloss Kit, drove strong consumer engagement and helped e.l.f. Beauty achieve market share gains across face, lip, and eye categories. Amin described the Halo Glow Skin Tint as “our top-selling cosmetics product.”
• International growth acceleration: International net sales rose 30%, outpacing U.S. growth, with successful launches in markets like the Netherlands and Belgium. The company also reported its brand quickly becoming the top seller in new European retail channels.
• Rhode acquisition integration: The acquisition of Rhode, a high-growth direct-to-consumer brand, was finalized and is expected to boost revenue and expand e.l.f. Beauty’s presence in premium skin care. Management is prioritizing accelerating Rhode’s brand awareness and retail distribution, including a full rollout in Sephora stores in the U.S., Canada, and the U.K.
• Retail and channel expansion: Partnerships with retailers such as Dollar General brought in new customers, with 60% of e.l.f. purchases at Dollar General coming from shoppers new to the cosmetics category at that chain. The company is expanding its footprint in these channels to access underserved markets.

Drivers of Future Performance

Management expects tariff mitigation, product innovation, and Rhode’s retail rollout to drive results, while noting ongoing headwinds from cost pressures and consumer response to price changes.

• Tariff mitigation and pricing: The company is implementing a price increase across its assortment and optimizing its supply chain to offset the impact of higher tariffs. Management remains cautious about how consumers will react to these increases, emphasizing that elasticity—how demand responds to price changes—remains a key uncertainty.
• Rhode integration and retail launches: The rollout of Rhode into Sephora and additional international markets is expected to drive incremental sales. Management plans to invest in marketing to build Rhode’s brand awareness and leverage e.l.f. Beauty’s established retail relationships to scale the brand quickly.
• Innovation and market expansion: Continued focus on multi-benefit products and expansion into new retail channels and geographies are seen as growth drivers. Management is monitoring the consumer environment, particularly in the U.S., where spending remains selective, which could affect future growth trajectories.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) tariff developments and their resolution, as these will directly affect margins and pricing strategies, (2) Rhode’s rollout across Sephora in North America and the U.K., and (3) the consumer response to price increases, particularly in the U.S. channels. Execution on new product launches and further expansion into international markets remain important markers of success.

e.l.f. Beauty currently trades at $111.71, up from $110.39 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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