E.l.f. Beauty Stock Plummets as Retailer Lowers Guidance, Blaming 'Soft' January Amid TikTok Controversy and LA Wildfires

E.l.f. Beauty lowered its full-year guidance on Thursday, citing a 36% decline in profitability and "softer than expected" sales trends in January. This is an unusual fall for one of the beauty industry's most popular companies. 

The cosmetics company posted higher-than-expected holiday sales but profits that were narrowly below projections, marking another unusual failure for the store. 

E.L.F. shares plunged more than 20% in extended trading on Thursday.

Here's how E.L.F. Performed in its fiscal third quarter compared to what Wall Street expected, according to an LSEG analyst survey:

Earnings per share: 74 cents adjusted compared to 75 cents predicted.

Revenue: $355 million vs $330 million predicted.

The company's recorded net income for the three months ended Dec. 31 was $17.3 million, or 30 cents per share, compared to $26.9 million, or 46 cents per share, the previous year. E.l.f. reported adjusted earnings of 74 cents per share, excluding one-time factors such as stock-based compensation and expenses related to its acquisition of Naturium. 

Sales increased to $355 million, up around 31% from $271 million the previous year.

E.l.f. presented projections for its complete fiscal year, with only one quarter remaining, that fell short of Wall Street estimates. According to StreetAccount, the store now expects sales of $1.3 billion to $1.31 billion, which is lower than the previous projection of $1.34 billion. It had previously estimated sales to range between $1.32 billion and $1.34 billion. 

E.l.f. We expect adjusted earnings per share of $3.27 to $3.32, much below StreetAccount's forecast of $3.54. E.l.f. had previously estimated full-year earnings of $3.47 to $3.53. 

The company's implicit projection for the current quarter is even more bleak. Based on its full-year outlook and actual statistics from the first three quarters, E.l.f. could earn between 66 cents and 71 cents per share in the current quarter, much below expectations of 97 cents, according to a CNBC analysis and estimates from LSEG. 

In an interview with CNBC, CEO Tarang Amin dismissed concerns about the company's more significant challenges, citing a general downturn in the beauty industry, difficult prior-year comparisons, and recent product introductions that performed poorly compared to previous new items. 

In terms of the entire category, Amin said that mass cosmetics fell 5% in January, which the business believes was due to two factors: a hangover from holiday pricing and a slowdown in "social commentary," or fewer people talking about beauty online, which helps fuel cosmetics sales. 

"One, [with] the LA flames, I believe people didn't want to be tone-deaf by posting some stuff while the damage was ongoing. The second point is that there was a lot of ambiguity surrounding TikTok. "I feel like the only thing people were posting on TikTok was whether it would stay open or shut down," Amin remarked. "Whatever the reason, that social commentary was way down."

Amin also discussed impending tariffs on China and how the company is preparing. Approximately 80% of its supply chain is located in the region.

Amin stated that it is too early to predict whether E.L.F. It will raise prices to counteract the impact on earnings, but the new 10% charges are better than the company braced for.

E.L.F. has been one of the fastest-growing beauty businesses in recent years, attracting both young and old customers with viral marketing, low costs, and the capacity to create high-quality, more inexpensive "dupes" of prestige items.

While the brand continues to grow and claims to surpass the general category, the growth rate is slowing, and recent product launches have not boosted sales as much as they have in the past. 

Amin stated that the company favours a "prudent" approach to guidance and considers E.L.F.'s outperformance in the overall category to be a triumph.

He stated that the corporation uses its income to develop inventory management programs, infrastructure, and worldwide expansion.