E.l.f. Beauty's 30% Profit Drop Amid China Tariff Pressures

E.l.f. Beauty's Q1 Performance and Challenges

E.l.f. Beauty exceeded Wall Street expectations in its fiscal first quarter, with both top-line and bottom-line growth. However, the company faced significant challenges due to new tariffs on Chinese imports, which impacted its profits. The company reported a 30% decline in net income compared to the same period last year.

In the three months ending June 30, E.l.f. Beauty’s net income dropped to $33.3 million, down from $47.6 million in the previous year. The company sources approximately 75% of its products from China, making it vulnerable to the effects of new tariffs. As a result, E.l.f. did not provide a full-year revenue guide, citing the "wide range of potential outcomes" related to the new duties.

Instead, the company only issued guidance for the first half of the fiscal year. E.l.f. expects sales growth to be above 9% in the first half of the year and adjusted EBITDA margins to be 20%, compared to 23% in the first half of the previous fiscal year. CEO Tarang Amin explained that the uncertainty surrounding tariffs made it difficult to provide a full-year forecast.

"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," Amin said. "It's the uncertainty around the tariffs that make things more difficult."

To mitigate the impact of tariffs, E.l.f. has already raised prices by $1 and is working to expand its business outside of the U.S. and diversify its supply chain. Amin noted that the company faces under 55% tariffs on goods coming from China and has planned against that. He added that while 55% tariffs are still high, they are better than the potential 170% rate.

Strong Performance Despite Challenges

Despite the challenges, E.l.f. Beauty beat expectations on both the top and bottom lines. According to a survey of analysts by LSEG, the company reported:

• Earnings per share: 89 cents (adjusted) vs. 84 cents expected
• Revenue: $354 million vs. $350 million expected

The company's reported net income for the three-month period was $33.3 million, or 58 cents per share, compared to $47.6 million, or 81 cents per share, a year earlier. Excluding one-time items related to stock-based compensation and other nonrecurring charges, E.l.f. saw adjusted net income of $51.3 million, or 89 cents per share.

Sales rose to $354 million, up 9% from $324 million a year earlier. This marks the second quarter in a row in which revenue growth slowed to the single digits, a pattern the company hasn’t seen since 2020. Over the past four years, E.l.f.’s sales have consistently grown in the high double digits, but this momentum has started to slow as the beauty category cools off after several years of strong growth.

Amin said growth is expected to improve in the current quarter. He pointed out that the quarter’s 9% sales growth is on top of 50% growth in the year-ago period but acknowledged the broader category and consumer spending remain soft.

"Sometimes people forget just how much we've been growing," Amin said. "The category, the state of the consumer, is still challenged. There's a lot of uncertainty with tariffs, inflation."

Market Share and Strategic Moves

Despite the slower growth, Amin said Nielsen data shows E.l.f. is still taking market share and outperforming the overall category. A key driver of the company's growth comes from buzzy product launches, often inspired by higher-priced prestige products. For example, E.l.f. recently launched its Bright Icon Vitamin C + E Ferulic Serum at $17, which is thought to have been inspired by a similar product from SkinCeuticals, which retails for $185.

The company also released a new sunscreen and recently closed its acquisition of Hailey Bieber’s beauty brand Rhode. Rhode will launch in all Sephora stores in the U.S. and Canada in September. However, the effect of this acquisition on E.l.f.'s sales, especially the Sephora launch, won’t be seen in its results until later this year.