2023-07-27 02:41:35 ET
Summary
- e.l.f. Beauty's Q1 revenue and EPS estimates have risen significantly over the past year.
- The company's CFO has indicated that Q1 growth will be higher than the company's overall projected growth for the year.
- ELF's strong Q1 growth expectations are attributed to additional shelf space gained last year and expansion in major retail stores.
e.l.f. Beauty ( ELF ) shares are up over 50% since I first recommended it as a "Buy" in late February, easily outpacing the 14% gain in the S&P 500. In June I took the stock to "Hold," where it has since risen another 6%, keeping pace with the S&P over the same period. Let's catch up on the name ahead of its earnings.
Company Profile
As a quick refresher, ELF is a fast-follower beauty company that sells its cosmetic and skincare products at a much lower price than prestige cosmetic brands. It typically sells its offering through the mass beauty channel, and it counts Target ( TGT ), Walmart ( WMT ), and Ulta Beauty ( ULTA ) among its largest retail channels.
Its brands include e.l.f. Cosmetics, e.l.f. SKIN, Well People, and Keys Soulcare brands. ELF forgoes traditional TV and print advertising and instead relies on promoting its products through social media and influencers.
Earnings Preview
ELF will likely report its fiscal Q1 earnings August 1st after the bell. The stock has shown moderate volatility following its earnings, moving more than 10% four of the past ten quarters. The stock has risen following its earnings report in eight of the past ten quarters, including the past five. Investor reactions have ranged from a -8.2% decrease in fiscal Q2 of 2021, to a 22.5% jump last quarter. The stock has risen each of the past three times it has reported its Q2 results, with gains between 4.3-13.1%.
ELF has beaten analyst estimates for EPS and revenue each quarter over the past two years. The revenue beats have tended to be quite large. Outside of one quarter where it posted a 3.2% beat, the other quarters have ranged from 9.3-22.0%. The EPS beats have been even more dramatic, with the smallest topping estimates by 57.5%.
ELFs fiscal Q1 revenue estimates, meanwhile, have soared higher over the past year, and are now nearly 57% higher versus a year ago. Revenue estimates are up 23% since late May and now stand at $184 million.
ELF's fiscal Q1 EPS estimates, meanwhile, have more than doubled over the past year. Analyst expectations have gone from 47 cents in late May to 56 cents currently.
ELF did not provide official fiscal Q1 guidance on its earnings call, but it did provide full-year fiscal 2024 guidance and some Q1 commentary. The company guided for fiscal 2024 sales to grow 22-24% to between $705-$720 million. It forecast adjusted EBITDA of between $144.5-$147.5 million and adjusted EPS in the range of $1.73-$1.76.
On its Q4 call, CFO Mandy Fields noted at the time that Q1 growth will be higher than the company's overall 22-24% projected growth for the year. She noted that scanner growth was close to 50%, and that this is where sales growth could come in for the quarter, or better. She also later noted that Q1 EBITDA margins will also likely be higher than the implied guidance for the full fiscal year. Notably, analyst fiscal Q1 revenue estimates of $184 million represents 50% growth.
Part of ELF's strong Q1 growth expectations can likely be attributed to additional shelf space that it gained last year, as well as getting expanded space in Target, Walmart, CVS ( CVS ) and Shoppers Drug Mart this spring. The beauty category has been hot and ELF is the hottest brand in the category. Coty ( COTY ) even called out ELF at its analyst day in July , saying how fast the mass category is growing and that it is being led by ELF.
On its fiscal Q4 call , CEO Tarang Amin also talked about some of the company's opportunities with skincare, which is a newer emerging category for ELF. I view this as another really nice growth driver. He said:
We see significant white space and skin care. This is a $5 billion category in the U.S. We're the #19 brand today with a little over 1% share. We believe we have the right to win in skin. Amongst teens, we're already a top 10 brand. Skin care represents 8% of our consumption in Nielsen tracked channels. It drives nearly 20% of our business on elfcosmetics.com where consumers see the full strength of our assortment. Our focus in skin care is bringing new consumers into the fold as we go after segments like makeup removal, sun care and anti-aging. Our top 3 best sellers on elfskin.com in Q4 were some of our latest innovations in these areas. Similar to our strategy in cosmetics, we plan to lean on our value proposition, powerhouse innovation and disruptive marketing engine to accelerate awareness for e.l.f. SKIN."
Looking at fiscal Q2 and Q3 revenue estimates from analysts, they look low in my view. Fiscal Q2 revenue estimates are currently at $164.8 million. While ELF can see a sequential decline in sales from Q1 to Q2, it typically isn't this large. For Q3, meanwhile, analyst estimates are for sales of $175 million. Typically, Q3 sales are stronger than Q1, not lower, and ELF is also gaining some shelf space in the fall at ULTA, CVS, and Walgreens ( WBA ). Throw in some momentum with skincare and international, and Q2 and Q3 revenue estimates look materially low.
As such, it looks like the company is easily set up for a fiscal Q1 beat and full-year raise. The company appears to have been conservative with guidance and the consumer has not shown many signs of weakening.
Valuation
ELF stock trades around 38.9x the FY2024 (ending March) consensus EBITDA of $158.6 million and 26.7x the FY2025 consensus of $231.4 million.
It trades at a forward P/E of 62.5x the FY24 consensus of $1.82. Based on 2025 analyst estimates of $2.24, it trades at 50.7x.
Comparatively, Estee Lauder ( EL ) is valued at ~20x fiscal '24 EBITDA (ending June). Fragrance and cosmetics company COTY has a multiple of ~12.4x '24 EBITDA (ending June), while cosmetic retailer ULTA is valued at ~12.6x FY'24 EBITDA (ending January).
Conclusion
ELF has been on a remarkable run, up about 250% over the past year. Its valuation has gotten on the high side, but its growth is undeniable.
I think current full-year estimates look materially low, and thus I am expecting a strong report from the company when it reports its results. I'm not a new buyer because of its valuation, but I wouldn't be a seller either.
For further details see:
e.l.f. Beauty: Full-Year Estimates Are Too Low