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- E.l.f. Beauty has received around $50 million in tariff refunds, leading its net income to surge by nearly 100% and gross margin to grow by 14 percentage points.
- The impact is a one-time blip and not something investors can continue to expect moving forward as refunds dry up.
- E.l.f. said it’s planning to reinvest the tariff refund it received into marketing and lowering prices on about 10% of its assortment.
The New York Stock Exchange welcomes e.l.f. Beauty (NYSE: ELF), on March 18, 2024, to the podium to celebrate its 20th anniversary of founding. To honor the occasion, Tarang Amin, Chairman & CEO, joined by Tara Dziedzic, NYSE Head of Listings – U.S. Sectors, rings The Opening Bell®.
E.l.f. Beauty‘s profits nearly doubled during its fiscal first quarter thanks to a windfall of cash it received in tariff refunds from the federal government, the company said Wednesday.
In the three months ended June 30, E.l.f. received about $50 million in tariff refunds, plus some interest payments related to the duties that were struck down by the Supreme Court, leading its net income to grow by about 100% and its gross margin to grow by 14 percentage points compared to the prior year.
“Our plan is to fully reinvest that money in both pricing, to have a superior value proposition, as well as increased marketing across our entire portfolio of brands,” CEO Tarang Amin told CNBC in an interview. “We feel we never should have had the tariffs to begin with, so let’s invest in our brands to drive the strength that we see.”
While the company is still waiting for around $8 million in additional refunds, the major impact to profitability seen during the quarter will be a one-time blip that won’t continue moving forward.
Here’s how the cosmetics company performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $1.75 adjusted vs. 71 cents expected
- Revenue: $479 million vs. $430 million expected
The company’s reported net income for the three-month period that ended June 30 was $66.6 million, or $1.12 per share, compared with $33.3 million, or 58 cents per share, a year earlier. Adjusting for non-recurring charges related to taxes and stock-based compensation, E.l.f. posted earnings of $1.75 per share.
Sales rose to $479.4 million, up about 36% from $353.7 million a year earlier.
The strong results led E.l.f. to raise both its full-year revenue guide and full-year adjusted earnings per share outlook. The retailer is now expecting sales to be between $1.94 billion and $1.97 billion, beating expectations of $1.86 billion and up from a prior range of between $1.84 billion and $1.87 billion, according to LSEG.
It’s now expecting adjusted earnings per share to be between $3.50 and $3.55, beating expectations of $3.33 and up from a prior range of between $3.27 to $3.32.
Though the tariff refund was the primary driver of E.l.f.’s outsized profitability during the quarter, Amin said the company’s gross margin still would have been up by about 3.5 percentage points without it, primarily due to price increases it implemented last year and lower tariffs.
The benefit of those higher prices will start to wane in the current quarter as E.l.f. begins to lap some of those price increases and walks some of them back.
Last quarter, Amin said the retailer planned to reverse some of the tariff-fueled price increases it implemented last summer so it could stimulate demand from cash-strapped consumers, telling CNBC shoppers were “suffering” from high gas prices and other concerns.
Over the past few months, the retailer conducted a pricing study across 80% of its assortment, where it walked back prices on average by $1 to see if there would be an impact on demand. However, it found that lower prices on the vast majority of the assortment, around 90%, didn’t have an impact on units sold and only about 10% of the assortment could benefit from a price reduction to stimulate volume.
“We used the actual consumer behavior of consumers voting with their wallet, of which items do we see a massive improvement in unit volume, which ones didn’t really see that much of a difference, which told us that those items were appropriately priced to begin with,” Amin said. “So we took advantage of the tariff refund to be able to do that broad testing and we feel really great about the data that we got back in terms of which items we could identify that could really drive unit momentum.”
For example, volume growth for E.l.f.’s best selling Power Grip Primer didn’t really budge when the price was reduced, but the company did see a change when it reduced its Cream Glide Lip Liner from $3 to $2.
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