Analysts Defend E.l.f. Beauty After Market Jitters
Market jitters over E.l.f. Beauty have been overblown, according to analysts.
The mass beauty company’s shares fell almost 12 percent Wednesday, its biggest one-day fall since October, after Ulta Beauty CEO Dave Kimbell warned that demand for beauty in general had slowed by more than he had anticipated. Other beauty companies, including the Estée Lauder Cos. and Coty Inc., also saw shares slide by 4 and 6 percent respectively. Ulta, meanwhile, dropped 15 percent.
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But in a note, Anna Lizzul, a research analyst at Bank of America, described E.l.f.’s share price slide as both “overblown” and “overdone.”
She pointed to the fact that while Kimbell said the slowdown was across segments and prices during a Wednesday appearance at a J.P. Morgan conference in New York City, he highlighted E.l.f. as a “real growth driver for the category and for us,” contributing to Ulta’s share gain in the affordable beauty segment, with higher-end makeup and hair as more challenging categories.
“Following the weakness week-to-date, we see an attractive opportunity for E.l.f. shares,” Lizzul said. “We continue to see outsized opportunity for growth ahead with shelf space gains at Walmart and CVS, where E.l.f. is underpenetrated.”
At the same time, Ashley Helgans, an analyst at Jefferies, added that while E.l.f.’s data has slowed in recent months due to tough comparisons, she is still seeing meaningful consumer engagement in the company, whose brands include E.l.f., Naturium, Well People and Keys Soulcare with Alicia Keys.
In particular, she said there is much opportunity for the E.l.f. brand internationally. In the Netherlands, it just rolled out in Etos and Douglas.
“The footprint of these two retailers is significant. The Netherlands mass color cosmetics market in 2022 was worth $394 million and mass skin $547 million.”
In October, E.l.f. entered Douglas in Italy, and last month it opened its first European office in London, furthering a commitment to grow the company’s international business.
“We see significant runway in both the U.K. and other markets around the world,” said Tarang Amin, chairman and CEO of E.l.f. Beauty at the time of the London office opening. “E.l.f. will bring its unique value proposition, powerhouse innovation and disruptive marketing engine — which have proven to resonate across categories and geographies — into new places and spaces with the purpose to serve every eye, lip and face.”
The company is forecasting full-year sales in a range of between $980 million and $990 million, compared with its previous forecast of $896 million to $906 million. Net income is expected to reach $164 million to $166 million, higher than previous expectations of $144 million to $146 million.
On Thursday, the company’s share price closed down 0.8 percent to $162.53. Ulta Beauty shares were 1.97 percent higher at $448.64, while Coty stock was up 1.5 percent to $11.06 and Estée Lauder stock fell 1.5 percent to $144.31.
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