e.l.f. Beauty, Inc. (ELF) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with expected net sales growth and improved EBITDA margins. The company is strategically investing in marketing and international expansion, with successful product launches and innovation pipelines. Despite some concerns about organic growth and tariffs, management's optimistic guidance and focus on maintaining quality suggest a positive outlook. The positive sentiment is reinforced by the expected gross margin improvements and disciplined global expansion, likely leading to a stock price increase.
Key Financial Performance
Net Sales Growth Net sales grew 38% year-over-year in Q3, driven by the acquisition of Rhode, which contributed $128 million or approximately 36 percentage points to the growth. Organic sales excluding Rhode were up approximately 2% year-over-year, impacted by softer trends in the U.K. and Germany.
Gross Margin Gross margin was 71%, down approximately 30 basis points compared to the prior year, primarily due to tariffs, partially offset by pricing and mix. Sequentially, it was up 200 basis points versus Q2.
Adjusted EBITDA Adjusted EBITDA was $123 million, up 79% year-over-year, supported by strong retail sell-throughs and record-breaking launches.
Adjusted Net Income Adjusted net income was $74 million or $1.24 per diluted share, compared to $43 million or $0.74 per diluted share a year ago, reflecting a significant improvement in profitability.
Cash Balance The company ended the quarter with $197 million in cash, compared to $74 million a year ago, reflecting strong cash flow generation and disciplined financial management.
SG&A as a Percentage of Sales SG&A as a percentage of sales was 51% in Q3, compared to 54% in Q3 last year, reflecting leverage in marketing spend and a timing shift of some SG&A expenses into Q4.
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Operating Highlights
New Product Launches: e.l.f. introduced Glow Reviver Slipstick at $10, achieving #1 new lipstick on Amazon and TikTok Shop. Also launched e.l.f Soft Glam Satin Concealer at $5, addressing community demand for value.
Fragrance Launch: e.l.f. collaborated with H&M to launch its first fragrance collection in 27 countries, marking its first global collaboration.
Market Share Growth: e.l.f. Cosmetics increased U.S. market share by 130 basis points, achieving the largest share gain among 700+ brands tracked by Nielsen.
Global Expansion: e.l.f. expanded its presence in Ulta Beauty (U.S.) and launched with DM in Germany. Rhode launched in Australia and New Zealand with Mecca, following record-breaking launches in Sephora North America and U.K.
Financial Performance: Q3 net sales grew 38% YoY, with adjusted EBITDA up 79%. Rhode contributed $128M to Q3 net sales growth.
Marketing Efficiency: Marketing spend reduced to 21% of net sales in Q3 from 27% last year, leveraging digital and community engagement.
Strategic Acquisitions: Acquisition of Rhode significantly boosted sales, contributing $260M-$265M to fiscal 2026 outlook.
Retail Expansion: Naturium expanded to Walmart in the U.S., enhancing its retail footprint.
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Risk or Challenges
Softer trends in the U.K. and Germany: The company experienced weaker consumption in its largest international markets, the U.K. and Germany, which could impact overall international sales growth.
Tariffs impacting gross margin: Year-over-year gross margin decreased due to tariffs, which could continue to pressure profitability.
Pipeline headwinds from prior retail expansions: The company is cycling significant retail expansions from the previous year, including launches in Dollar General and Target, which is causing shipments to lag behind consumption in the second half of the fiscal year.
Increased marketing and SG&A expenses: Planned investments in marketing campaigns, including a commercial debuting at the big game, and non-marketing SG&A expenses related to space expansion and team building, could pressure margins in the short term.
Dependence on U.S. market: International sales account for only 20% of net sales compared to legacy peers with over 70% international sales, indicating a reliance on the U.S. market for growth.
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Guidance & Outlook
Fiscal 2026 Net Sales Growth: The company has raised its fiscal 2026 net sales growth outlook to approximately 22% to 23% year-over-year, up from the previous guidance of 18% to 20%. This increase is primarily driven by the outperformance of the Rhode brand.
Rhode Brand Contribution: Rhode is expected to contribute approximately $260 million to $265 million in net sales for fiscal 2026, compared to the previous expectation of $200 million. On an annualized basis, Rhode is projected to achieve net sales growth of approximately 70% year-over-year.
Second Half Net Sales Growth: Guidance implies 31% to 33% net sales growth in the second half of fiscal 2026. Excluding Rhode, organic net sales are expected to grow approximately 2%.
Global Consumption Growth: The company assumes approximately 6% global consumption growth, offset by a 4 percentage point headwind from pipeline adjustments due to prior retail expansions.
Adjusted EBITDA for Fiscal 2026: The company now expects adjusted EBITDA of $323 million to $326 million, up from the previous guidance of $302 million to $306 million. Adjusted EBITDA margins are expected to be approximately 20% for the full year.
Second Half Adjusted EBITDA Margins: Adjusted EBITDA margins for the second half are expected to be approximately 19%, down 300 basis points year-over-year due to increased marketing spend and investments in team and space expansion.
Marketing Spend: Marketing spend is expected to be about 27% of net sales in the second half of fiscal 2026, up 200 basis points from the prior year. This includes significant campaigns such as a new commercial debuting at the big game.
Space Expansion and Team Investments: Incremental costs related to fixturing, merchandising, and team building are planned to support additional space and distribution as well as the significant white space opportunities across categories, brands, and geographies.
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Shareholder Return Plan
Share Repurchase Program: During the quarter, we repurchased approximately $50 million of our outstanding common stock, given the disconnect we see between e.l.f Beauty's market valuation and the strength of our business fundamentals. At quarter end, approximately $400 million remained available for repurchase under our previously authorized repurchase program.
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Key Q&A
Q:Can you explain your approach to spending and guidance, particularly regarding EBITDA margins and the Super Bowl ad?
A:Mandy Fields explained that the second half adjusted EBITDA margin is expected to be around 19%, up from 17% previously. This includes cost shifts from Q3 to Q4, additional marketing spend, and investments in team and infrastructure. The Super Bowl activation is part of this strategy.
Q:What is the plan for expanding rhode at a faster pace?
A:Tarang Amin stated that the focus is on maintaining the quality of launches rather than accelerating the pace. Rhode has seen phenomenal growth, with successful launches in North America, the U.K., and upcoming launches in Australia and New Zealand. The goal is disciplined global expansion while maintaining high-quality execution.
Q:What are the plans to drive incremental growth for the core e.l.f brand, including international launches?
A:Tarang Amin highlighted the strategy of consistent market share gains, strong retailer productivity, and international expansion. Upcoming launches include DM in Germany, building on previous successes in Canada, the U.K., and Germany. The focus is on leveraging the brand's value proposition, innovation, and marketing.
Q:How has the U.S. e.l.f cosmetics business performed post-price increase, and what is the innovation pipeline for spring?
A:Tarang Amin reported that the brand is healthy, with consumption twice the category growth. A 15% price increase resulted in single-digit unit declines. The spring innovation pipeline includes products like the $10 slipstick and $5 Soft Glam Satin Concealer, with promising early results.
Q:What are the innovation and portfolio plans for rhode in the U.S. for fiscal '27?
A:Tarang Amin mentioned recent launches like a face mask and lip mask, with strong consumer acceptance. The brand's curated and thoughtful innovation strategy will continue, supported by strong plans for Naturium, e.l.f skin, and Well People.
Q:What are the largest buckets of share gain opportunities for core e.l.f, and what KPIs are tracked for international markets?
A:Tarang Amin identified opportunities in under-shared categories like Lip and Mascara, while maintaining leadership in segments like Face. International KPIs include consumer penetration, brand ranking, and productivity metrics. The focus is on building depth in existing markets like Germany and the U.K.
Q:Why did you decide to return to a Super Bowl ad this year, and how does it impact marketing spend?
A:Mandy Fields explained that this year's Super Bowl activation will be through streaming on Peacock and Univision, not a broad national ad. Marketing spend remains targeted at 24%-26% of net sales, with timing shifts leading to heavier Q4 spending.
Q:Why does the updated guidance suggest lower e.l.f brand growth despite higher rhode sales?
A:Mandy Fields clarified that the global consumption rate decreased from 8% to 6%, impacting the organic business. The guidance reflects a 2% organic growth rate for the second half, with potential upside depending on spring innovation performance.
Q:What caused the gap between U.S. organic performance and strong double-digit consumption growth in Q3?
A:Mandy Fields attributed the gap to shipment timing shifts from Q3 to Q4 and a lower global consumption rate. The second half is expected to show strong momentum, with spring innovation contributing to future growth.
Q:What initiatives are planned to address softness in the U.K. market?
A:Tarang Amin outlined plans to reinforce the value proposition, leverage new leadership, and focus on innovation and marketing. The U.K. remains a key market with long-term growth potential.
Q:What is the investment outlook for rhode, and how does it align with its growth trajectory?
A:Tarang Amin stated that investments are focused on meeting demand, building team capabilities, and supporting global aspirations. The brand's strong margins allow for continued investment, with a pay-as-you-go approach.
Q:What is the status of tariffs and their impact on pricing and shipments?
A:Mandy Fields reported that tariffs are currently at 45%, down from 170% earlier in the fiscal year. This could become a tailwind in fiscal '27. Pricing issues with retailers were resolved by the end of Q2.
Q:How does the company plan to optimize spending on space expansion?
A:Mandy Fields explained that space expansion spending includes incremental and refreshed space costs. Tarang Amin added that there is potential to optimize spending, particularly in international markets, while maintaining strong returns on investment.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific split of rhode's $128 million contribution between U.S. and international markets, as well as the exact breakdown of the 6% global consumption rate between U.S. and international markets. Additionally, they did not provide detailed metrics on the expected returns from marketing spend on space expansion or the precise timing of benefits from spring innovation.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Amazon Space
Amazon TikTok
America record
Australia New
Bieber brand
Consumers price
Corp paint
Cosmetics Liquid
HM
Naturium
New Zealand
North America
Spring
Ulta
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brand portfolio
brand price
brand product
brand rhode
brand year
care brand
collaboration
collection
commercial
drive
edition
fragrance
game
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minute
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sale brand
slipstick
ELF Transcript
e.l.f. Beauty, Inc. (ELF) Q3 2026 Earnings Call Transcript
Positive2-4
The earnings call highlights strong financial performance with expected net sales growth and improved EBITDA margins. The company is strategically investing in marketing and international expansion, with successful product launches and innovation pipelines. Despite some concerns about organic growth and tariffs, management's optimistic guidance and focus on maintaining quality suggest a positive outlook. The positive sentiment is reinforced by the expected gross margin improvements and disciplined global expansion, likely leading to a stock price increase.
e.l.f. Beauty, Inc. (ELF) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-3
e.l.f. Beauty, Inc. (ELF) Q2 2026 Earnings Call Transcript
Unknown11-5
The earnings call reveals mixed signals: strong net sales growth due to the Rhode acquisition but a decline in organic sales and adjusted EBITDA. Tariff impacts and increased SG&A expenses weigh on margins. Despite optimistic guidance and strategic international expansion, unresolved pricing issues and unclear management responses raise concerns. The Q&A provided some reassurance about future growth, but the lack of clarity on core business deceleration tempers optimism. The neutral sentiment reflects these balanced positive and negative factors.
e.l.f. Beauty, Inc. (ELF) Q1 2026 Earnings Call Transcript
Positive8-6
The earnings call reveals strong financial performance, market share gains, and expansion plans. The acquisition of Rhode is expected to be accretive, with significant growth potential. Despite uncertainties around tariffs, the company's strategic initiatives, including price increases, supply chain diversification, and international expansion, are positive. The management's cautious optimism and focus on innovation, along with the robust digital sales growth, suggest a positive stock price reaction over the next two weeks.
ELF Report
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