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e.l.f. reported a mixed quarter, and its outlook calls for slow organic growth and an earnings decline for the full fiscal year.
Tariffs are hurting the bottom line, and the acquisition of Rhode is driving most of the company's revenue growth.
The stock looks too expensive, given its results and guidance.
Shares of cosmetics and skincare company e.l.f. Beauty (NYSE: ELF) fell off a cliff Thursday morning following a mixed quarterly report. Revenue rose by 14% year over year to $343.9 million in the second quarter of fiscal 2026, falling short of analyst expectations, while adjusted EPS of $0.68 was better than expected.
The company's outlook was the real problem, though, sending the stock down 33% by 11:10 a.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
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e.l.f. Beauty's gross margin contracted by more than 1.5 percentage points in the second quarter, with the company blaming the impact of higher tariff costs, and adjusted EPS declined by about 12%. For fiscal 2026, e.l.f. expects an even steeper decline in earnings.
Revenue should grow by about 19% at the midpoint of the company's guidance range in fiscal 2026, but the bottom line is going to take a meaningful hit. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will barely grow, expected to rise by just 2% compared to fiscal 2025. Adjusted EPS is expected to come in between $2.80 and $2.85, which represents a 17% drop from fiscal 2025.
While e.l.f. will grow revenue far faster than the global beauty market in fiscal 2026, there's one important caveat: Around $200 million in revenue will come from Rhode, which the company acquired earlier this year. Excluding the impact of Rhode, e.l.f.'s organic revenue growth for the full fiscal year will be just 3% to 4%.
While the steep drop in the stock price Thursday morning may seem severe, the company's forecast left a lot to be desired as tariffs wreak havoc on its results.
It can be tempting to view Thursday's decline as a buying opportunity, but the stock still looks pricey. Shares trade for nearly 30 times adjusted earnings guidance, a premium that may not be deserved, given the sluggish organic revenue growth and declining earnings. It may be wise to wait for an even lower price to jump in.
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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.
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