e.l.f. Cosmetics Announces 6% Increase in Net Sales in Second Quarter Fiscal 2020 Results

OAKLAND, Calif.–(BUSINESS WIRE)–e.l.f. Beauty (NYSE: ELF) today announced results for the three and six months ended September 30, 2019.

“Q2 was another strong quarter with net sales of $68 Million, up 11% excluding e.l.f. stores. We are making significant progress executing against our five strategic imperatives and are pleased with the initial results of our brand recharge,” said Chairman and CEO Tarang Amin. “The increase in our marketing and digital activations coupled with the impact of our Project Unicorn initiative is driving productivity across channels, including on elfcosmetics.com. Given the continued momentum behind the brand, we are increasing our Fiscal 2020 guidance.”

Three months ended September 30, 2019 results

Net sales increased 6%, or $3.7 million, to $67.6 million as compared to $63.9 million in the three months ended September 30, 2018. The increase was primarily driven by increased productivity across channels and product price increases in response to tariffs. This was partially offset by the closing of all 22 e.l.f. retail stores in February 2019. The three months ended September 30, 2018 included $3.2 million in net sales related to our 22 e.l.f. retail stores. Excluding the contribution from e.l.f. retail stores, net sales increased 11% as compared to the three months ended September 30, 2018.

Gross margin increased to 64% from 61% when compared to the three months ended September 30, 2018, with benefits from product price increases, margin accretive innovation, vendor concessions and favorable movements in foreign exchange rates, partially offset by tariffs on goods imported from China.

Selling, general and administrative expenses (“SG&A”) was $38.4 million, or 57% of net sales, compared to $32.7 million, or 51% of net sales in the three months ended September 30, 2018. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) was $34.3 million, or 51% of net sales, compared to $28.4 million, or 45% of net sales in the three months ended September 30, 2018. The increase was primarily due to investments in marketing and digital expenses and increased depreciation expenses driven by customer fixture programs. These increases were partially offset by the closure of e.l.f retail stores.

The provision for income taxes was $1.5 million, as compared to $0.9 million in the three months ended September 30, 2018. The change in the provision for income taxes was primarily driven by an increase in income before taxes of $3.3 million.

On a GAAP basis, net income was $6.5 million, or $0.13 per diluted share, based on a weighted-average diluted share count of 50.9 million shares. This compares to net income of $3.9 million, or $0.08 per diluted share, based on a weighted-average diluted share count of 49.1 million shares in the three months ended September 30, 2018.

Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) decreased 1% to $15.0 million from $15.1 million in the three months ended September 30, 2018.

Adjusted net income (net income excluding the items identified in the reconciliation table below) decreased to $7.7 million, or $0.15 per diluted share, based on a weighted-average diluted share count of 50.9 million shares. This compares to adjusted net income of $8.4 million, or $0.17 per diluted share, based on a weighted-average diluted share count of 49.1 million in the three months ended September 30, 2018.

Six Months Ended September 30, 2019 results

Net sales increased 4%, or $4.4 million, to $127.4 million as compared to $122.9 million in the six months ended September 30, 2018. The increase was primarily driven by increased productivity across channels and product price increases, partially offset by the closing of all 22 e.l.f. retail stores in February 2019. The six months ended September 30, 2018 included $6.4 million in net sales related to our 22 e.l.f. retail stores. Excluding the contribution from e.l.f. retail stores, net sales increased 9% as compared to the six months ended September 30, 2018.

Gross margin slightly increased to 63% from 62% when compared to the six months ended September 30, 2018, with benefits from margin accretive innovation, vendor concessions, favorable movements in foreign exchange rates and product price increases, partially offset by higher sales adjustments and the impact of tariffs on goods imported from China.

SG&A was $70.5 million, or 55% of net sales, compared to $66.4 million, or 54% of net sales in the six months ended September 30, 2018. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) was $62.1 million, or 49% of net sales, compared to $57.4 million, or 47% of net sales in the six months ended September 30, 2018. The increase was primarily due to investments in marketing and digital expenses and increased depreciation expenses driven by customer fixture programs. These increases were partially offset by the closure of e.l.f retail stores.

The provision for income taxes was $3.4 million, as compared to $1.0 million in the six months ended September 30, 2018. The change in the provision for income taxes was primarily driven by an increase in income before taxes of $7.5 million and a decrease in discrete tax benefit of $0.4 million.

On a GAAP basis, net income was $10.2 million, or $0.20 per diluted share, based on a weighted-average diluted share count of 50.6 million shares. This compares to net income of $5.2 million, or $0.10 per diluted share, based on a weighted-average diluted share count of 49.3 million shares in the six months ended September 30, 2018.

Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) increased 5% to $29.5 million from $28.1 million in the six months ended September 30, 2018.

Adjusted net income (net income excluding the items identified in the reconciliation table below) was $14.6 million, or $0.29 per diluted share, based on a weighted-average diluted share count of 50.6 million shares. This compares to adjusted net income of $14.9 million, or $0.30 per diluted share, based on a weighted-average diluted share count of 49.3 million in the six months ended September 30, 2018.

Balance sheet

As of September 30, 2019, the Company had $58.7 million in cash and cash equivalents, as compared to $33.6 million as of September 30, 2018. The improvement was primarily due to improved operating results, partially offset by a decrease in other liabilities primarily related to termination payments on store leases. As of September 30, 2019, long-term debt totaled $132.4 million, as compared to $141.3 million as of September 30, 2018.

Company outlook

As previously disclosed, the Company changed its fiscal year from the twelve months beginning January 1 and ending December 31 to the twelve months beginning April 1 and ending March 31. As a result, throughout this press release, the twelve-month periods ended March 31, 2019 and March 31, 2020 are referred to as “fiscal 2019” and “fiscal 2020,” respectively.

“We raised guidance this quarter to reflect the momentum we’re seeing in top-line sales, balanced by a soft color cosmetics category, cycling larger holiday and pipeline volume in our fiscal 2019 base and ongoing evaluation of the long term impact of pricing,” said Mandy Fields, Senior Vice President and Chief Financial Officer. “We are pleased with the direction of the business and are focused on continued growth.”