E.l.f. Beauty to Reverse Price Increases Amid Declining Demand
E.l.f. Beauty is set to roll back some of the price increases it implemented less than a year ago, responding to a notable decline in consumer demand exacerbated by rising gas prices. The company’s CEO, Tarang Amin, acknowledged in a recent interview that significant price hikes have impacted unit sales more than anticipated, prompting a reassessment of their pricing strategy.
“Whenever you take a price increase that’s that big, you’re going to see unit degradation,” Amin stated. “However, we’ve observed a more pronounced drop in units recently as consumers grapple with escalating costs. This is one of the reasons we aim to reinforce our value proposition.”
In a recent trial, E.l.f. reduced the price of its $18 Halo Glow skin tint by $4, resulting in nearly a 40% increase in sales. This outcome underscored the sensitivity of consumers to pricing, leading the company to consider further price reductions across various product lines.
Last August, E.l.f. raised prices by $1 across its entire product assortment. Amin emphasized the importance of testing lower pricing on additional items to strengthen the company’s value proposition during challenging economic times.
The announcement of potential price reductions coincided with E.l.f.’s fiscal fourth-quarter earnings report, which exceeded Wall Street expectations on both revenue and earnings per share. The company reported earnings of 32 cents per share, surpassing the anticipated 29 cents, and revenue of $449 million, exceeding the expected $423 million.
Despite these positive results, E.l.f.’s stock experienced a modest increase of approximately 7% in after-hours trading. However, the company also reported a loss of $49.4 million, or 82 cents per share, for the three months ending March 31, compared to a profit of $28.3 million, or 49 cents per share, during the same period the previous year. This loss was largely attributed to a $57.6 million cost related to the acquisition of Rhode, which exceeded initial performance expectations.
Excluding this charge and other one-time expenses, E.l.f. reported a net income of $19.4 million, or 32 cents per share. Sales for the quarter increased by approximately 35% from $332.6 million a year earlier, with gross margins rising by 1.4 percentage points to 73%, largely due to the higher pricing that the company is now reconsidering.
Looking ahead, E.l.f. provided guidance for fiscal 2027 that fell short of analysts’ expectations. The company anticipates sales between $1.84 billion and $1.87 billion, slightly below the forecasted $1.87 billion. Additionally, expected adjusted earnings per share are projected to be between $3.27 and $3.32, significantly lower than the anticipated $3.61.
Amin expressed pride in the company’s profitability, particularly in light of the challenges posed by 55% tariffs. He noted that E.l.f. is expecting a $55 million tariff refund, which may help mitigate the impact of price reductions on profitability.
The Rhode brand, acquired about a year ago, has been a significant driver of E.l.f.’s growth, with sales increasing by 80% as it expanded into major retailers like Sephora in North America, Sephora UK, and Mecca. Rhode is poised to launch in 19 European countries this fall, indicating substantial growth potential.
While E.l.f. has traditionally relied on popular product launches for growth, the ongoing success of Rhode raises questions about future growth trajectories. Amin emphasized a strategy of “balanced growth” across its portfolio, expressing openness to expansion through mergers and acquisitions, albeit with a focus on organic growth as a priority.
“Our first priority is realizing the organic growth we have with our existing portfolio,” Amin stated. “We maintain a high standard for mergers and acquisitions, but we are a destination of choice for strong founders in the industry, which positions us well for future growth.”
