E.l.f. Beauty last week announced a shocking 30% decline in profits for its fiscal first quarter. The company attributes this drop to persistent tariff pressures and elevated costs from having to source materials outside of China. The dock company’s net income also dropped to $33.3 million, compared to $47.6 million in the comparable period last year. For instance, E.l.f. Beauty was able to record a stunning comeback amid sales of $354 million. This outstanding number represents a 9% jump from last year’s $324 million.
After all, the $1 billion company has only increased the prices of its products by $1. This move goes a long way in helping to offset China’s 55% tariffs on imported foreign manufactures. E.l.f. Beauty manufactures roughly 75% of its products from this part of the world. This unusual over-reliance places the company at extraordinary risk to shifts in trade policy.
Amid these challenges, E.l.f. Beauty is actively working to diversify its supply chain and expand its business beyond the U.S. market. Though tariffs and inflation have taken a toll, CEO Tarang Amin is confident about the company’s growth trajectory.
“Sometimes people forget just how much we’ve been growing,” – Tarang Amin
For the first quarter, E.l.f. Beauty was ecstatic over its adjusted net income of $51.3 million. That comes out to 89 cents per share. That said, revenue growth has been slowing rapidly, now into the single digits for the second quarter in a row. This trend is worrisome as the company deals with ongoing economic headwinds.
E.l.f. Beauty withdraws revenue outlook for the year. They complain of “a great variety of possible consequences” because of new duties on imports. This logic further highlights the gamble that the company is taking in betwixting the present economic ingredients.
Even in the face of these hurdles, E.l.f. Beauty is expecting sales growth of more than 9% for the first half of the fiscal year. The company expects adjusted EBITDA margins to be around 20%. This is a drop from 23% over the same time last fiscal year.
Amin said the company is weathering the storm and believes it has positioned itself to thrive in today’s environment. As a positive sign to the industry, he noted, the beauty category is still going strong. Consumers’ mood is being influenced by the realities of inflation and the ever-changing tariffs.
“The category, the state of the consumer, is still challenged. There’s a lot of uncertainty with tariffs, inflation,” – Tarang Amin
As E.l.f. Beauty navigates this volatile macro environment, its leadership is focused on strategic planning to mitigate risks associated with tariffs while pursuing avenues for growth. Amin saw the difficult state of play. He said he was glad that the company’s tariffs are still less than 55%, far from a possible 170%.
“We’re operating in a very volatile macro environment, obviously a great deal of uncertainty on tariffs, so until we have greater resolution on what the tariff picture looks like, we didn’t think it made sense to issue guidance,” – Tarang Amin