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e.l.f. Beauty’s (NYSE:ELF) Q4 Sales Top Estimates But Stock Drops 23.9%
Cosmetics company e.l.f. Beauty (NYSE:ELF) announced better-than-expected revenue in Q4 CY2024, with sales up 31.1% year on year to $355.3 million. On the other hand, the company’s full-year revenue guidance of $1.31 billion at the midpoint came in 2.5% below analysts’ estimates. Its non-GAAP profit of $0.74 per share was 2.5% below analysts’ consensus estimates.
Revenue: $355.3 million vs analyst estimates of $329.7 million (31.1% year-on-year growth, 7.8% beat)
Adjusted EPS: $0.74 vs analyst expectations of $0.76 (2.5% miss)
Adjusted EBITDA: $69.02 million vs analyst estimates of $72.69 million (19.4% margin, 5% miss)
The company dropped its revenue guidance for the full year to $1.31 billion at the midpoint from $1.33 billion, a 1.5% decrease
Management lowered its full-year Adjusted EPS guidance to $3.30 at the midpoint, a 5% decrease
EBITDA guidance for the full year is $291 million at the midpoint, below analyst estimates of $310.7 million
Operating Margin: 9.9%, down from 11.8% in the same quarter last year
Free Cash Flow was -$19.76 million compared to -$21.65 million in the same quarter last year
Market Capitalization: $4.92 billion
Short for “eyes, lips, face”, e.l.f. Beauty (NYSE:ELF) is a developer of high-quality beauty products at accessible price points.
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as “the lipstick effect” by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $1.30 billion in revenue over the past 12 months, e.l.f. Beauty is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage. On the other hand, it can grow faster because it’s working from a smaller revenue base and has a longer runway of untapped store chains to sell into.
As you can see below, e.l.f. Beauty’s sales grew at an incredible 50.8% compounded annual growth rate over the last three years. This is encouraging because it shows e.l.f. Beauty’s had strong demand, a helpful starting point.
e.l.f. Beauty Quarterly Revenue
This quarter, e.l.f. Beauty reported wonderful year-on-year revenue growth of 31.1%, and its $355.3 million of revenue exceeded Wall Street’s estimates by 7.8%.
Looking ahead, sell-side analysts expect revenue to grow 14.6% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is healthy and indicates the market is baking in success for its products.
Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
e.l.f. Beauty has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.9%, subpar for a consumer staples business.
Taking a step back, we can see that e.l.f. Beauty’s margin dropped by 4.9 percentage points over the last year. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course.
e.l.f. Beauty burned through $19.76 million of cash in Q4, equivalent to a negative 5.6% margin. The company’s cash burn was similar to its $21.65 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings.
We were impressed by how significantly e.l.f. Beauty blew past analysts’ revenue expectations this quarter. On the other hand, its EPS and EBITDA missed. It also lowered its full-year revenue, EPS, and EBITDA guidance, sending shares lower. Overall, this was a softer quarter. The stock traded down 23.9% to $67.40 immediately following the results.
e.l.f. Beauty may have had a tough quarter, but does that actually create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
