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Should You Buy e.l.f. Beauty Stock to Benefit From Its Buyback Plan?
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e.l.f. Beauty Inc. (ELF - Free Report) recently unveiled a share repurchase program, a strategic move that has caught the attention of investors. The announcement to buy back shares worth up to $500 million signals management's confidence in the company's financial health and commitment to enhancing shareholder value.
The announcement of a significant share buyback is a testament to e.l.f. Beauty’s confidence in its business model and future growth prospects. The company’s ability to generate solid cash flow, even in a highly competitive market, is a key indicator of its operational efficiency and financial discipline. In the first quarter of fiscal 2025 alone, e.l.f. Beauty generated $1.3 million in net cash from operating activities, underlining its capability to sustain growth while maintaining a healthy balance sheet.
Mandy Fields, the chief financial officer of e.l.f. Beauty, stated, “We expect our cash priorities to remain focused on investing in our growth initiatives and supporting our strategic extensions. Our new repurchase authorization provides another avenue for us to continue to drive long-term value creation for our shareholders.”
We believe that e.l.f. Beauty’s new buyback plan, at a time when the company is navigating a competitive beauty industry, demonstrates confidence in its strategy and long-term potential. This move is backed by ELF’s consistent track record of achieving strong sales and market share growth, which has positioned it favorably within the industry.
Unpacking e.l.f. Beauty's Growth Journey
e.l.f. Beauty has built a strong reputation for its ability to consistently deliver category-leading sales and market share growth. The company reported a 50% increase in net sales during the first quarter of fiscal 2025, marking its 22nd consecutive quarter of both sales growth and market share gains. The company’s success can be attributed to its innovative product offerings, strong distribution, strategic marketing efforts and ability to tap into key consumer trends.
The innovation strategy is a key driver of e.l.f. Beauty’s growth. The company has expanded its leadership in color cosmetics, with the number one or two positions across 18 segments, which represent more than 80% of its cosmetics sales. Recent product launches, such as the Soft Glam Satin Foundation and new items under the Naturium brand, have seen strong sales and consumer reception, reinforcing the company’s innovation-driven growth strategy.
ELF has been proactively broadening its retail footprint and expanding distribution channels to boost brand visibility and accessibility. e.l.f. Beauty has established strategic partnerships with major retailers such as Target (TGT - Free Report) and Ulta Beauty (ULTA - Free Report) , securing prominent shelf space in critical markets. At Target, e.l.f. Beauty has maintained its position as the top brand for six consecutive quarters, with its market share climbing from 13% to more than 20%. By diversifying its distribution avenues, e.l.f. Beauty aims to solidify its market position and attract a wider customer base across various regions.
Understanding the growing trend of online shopping, e.l.f. Beauty has been heavily investing in enhancing its digital and e-commerce capabilities. The company has focused on improving the user experience on its website, optimizing mobile platforms and leveraging digital marketing strategies to boost online sales and customer engagement. These initiatives are key to expanding its reach and driving growth in the increasingly competitive digital beauty market.
e.l.f. Beauty’s efforts to streamline operations, optimize its supply chain and manage costs have also contributed to its growth story. These initiatives have helped the company maintain healthy margins despite ongoing challenges in the broader economic environment.
e.l.f. Beauty's FY25 Forecast: Key Insights
In its first-quarter earnings, e.l.f. Beauty raised its guidance for fiscal 2025, reflecting strong business momentum. The company now expects net sales in the band of $1,280-1,300 million, suggesting 25-27% year-over-year growth. Earlier, management projected net sales in the range of $1,230-1,250 million, which indicated 20-22% growth.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are now expected in the band of $297-$301 million, up from the prior view of $285-$289 million. Management envisions adjusted earnings per share (EPS) for fiscal 2025 in the $3.36-$3.41 range compared with the earlier guided range of $3.20-$3.25. This raised outlook suggests that the company expects continued strong performance across its key business areas.
How Do Estimates Stack Up for ELF Stock?
Reflecting the positive sentiment around ELF, the Zacks Consensus Estimate for EPS has seen upward revisions. Over the past 30 days, analysts have increased their estimates for both the current and next fiscal year by 3.8% to $3.54 and by 3.2% to $4.48 per share, respectively. These estimates indicate expected year-over-year growth rates of 11.3% and 26.5%, respectively.
However, the consensus mark for the current-quarter EPS has gone down from 78 cents to 47 cents, indicating near-term concerns.
Image Source: Zacks Investment Research
Roadblocks on e.l.f. Beauty's Path
While e.l.f. Beauty's revised outlook for fiscal 2025 reflects strong performance and a positive long-term trajectory, the second quarter presents hurdles that could impact short-term profitability and margin expansion. Although the company has increased its annual net sales growth forecast, the second-quarter performance is expected to face strong comparisons from the previous year. Gross margin expectations for the second quarter of fiscal 2025 are projected to be flat year over year due to the timing of retailer activity and space expansion costs.
The company also plans to ramp up marketing and digital investments in the second quarter, with expenditure expected to increase from approximately 21% of net sales last year to a higher level. This is part of e.l.f. Beauty's strategy to sustain growth through enhanced brand visibility and digital engagement. However, this increased spending is anticipated to affect the adjusted EBITDA margin, which may be constrained in the low teens range for the second quarter. More significant margin improvements are only projected to occur in the latter half of the fiscal year as marketing expenses normalize and the Naturium acquisition completes a year in October.
e.l.f. Beauty contends with intense competition from both well-established mass-market and prestige beauty brands in a highly saturated industry. Despite its strong market position, ELF faces significant competition from major players like The Estee Lauder Companies (EL - Free Report) and Coty. While e.l.f. Beauty distinguishes itself by offering products at lower price points, this strategic focus on affordability potentially constrains the company's ability to raise prices and expand margins in a market where premium pricing often drives profitability and brand perception.
Moreover, as a company driven by consumer preferences, e.l.f. Beauty is sensitive to rapid shifts in consumer tastes and spending behavior. Broader macroeconomic factors, such as inflation and interest rates, could further impact consumer spending on items like cosmetics, posing additional risks to the company's growth and profitability.
ELF Stock Price Performance & Valuation Picture
The impact of these challenges is reflected in e.l.f. Beauty’s recent share price performance. The company’s shares have tumbled 10% over a month, underperforming the industry’s decline of 7.3%. The renowned cosmetics and skin care products company has also trailed the broader Zacks Consumer Staples sector and the S&P 500's respective growth of 3.7% and 3.2% during the same period. Additionally, this Oakland, CA-based company’s stock slipped below its 50-day moving average, suggesting a bearish trend.
Image Source: Zacks Investment Research
From a valuation perspective, e.l.f. Beauty still appears quite stretched. The stock is currently trading at a forward 12-month P/E ratio of 39.02, higher than the industry average of 24.33. This premium valuation implies high growth expectations, which may not be sustainable, given the current challenges. The company's Value Score of F further underscores these concerns.
Image Source: Zacks Investment Research
Investor Guidance for ELF
e.l.f. Beauty has consistently delivered sales and market share growth, fueled by innovative products, strategic retail partnerships and a strong digital presence. Its recent $500 million share repurchase plan highlights confidence in its strategy and financial health. With raised fiscal 2025 guidance, the company seems poised for continued success. However, short-term challenges, such as potential margin pressures from increased marketing spend, intense competition, and macroeconomic headwinds, remain. While e.l.f. Beauty's long-term outlook is strong, investors should weigh these risks and the stock's current valuation. Current stakeholders might consider holding the stock, while those looking to initiate a new position may wait for a more favorable entry point.
Image: Shutterstock
Should You Buy e.l.f. Beauty Stock to Benefit From Its Buyback Plan?
e.l.f. Beauty Inc. (ELF - Free Report) recently unveiled a share repurchase program, a strategic move that has caught the attention of investors. The announcement to buy back shares worth up to $500 million signals management's confidence in the company's financial health and commitment to enhancing shareholder value.
The announcement of a significant share buyback is a testament to e.l.f. Beauty’s confidence in its business model and future growth prospects. The company’s ability to generate solid cash flow, even in a highly competitive market, is a key indicator of its operational efficiency and financial discipline. In the first quarter of fiscal 2025 alone, e.l.f. Beauty generated $1.3 million in net cash from operating activities, underlining its capability to sustain growth while maintaining a healthy balance sheet.
Mandy Fields, the chief financial officer of e.l.f. Beauty, stated, “We expect our cash priorities to remain focused on investing in our growth initiatives and supporting our strategic extensions. Our new repurchase authorization provides another avenue for us to continue to drive long-term value creation for our shareholders.”
We believe that e.l.f. Beauty’s new buyback plan, at a time when the company is navigating a competitive beauty industry, demonstrates confidence in its strategy and long-term potential. This move is backed by ELF’s consistent track record of achieving strong sales and market share growth, which has positioned it favorably within the industry.
Unpacking e.l.f. Beauty's Growth Journey
e.l.f. Beauty has built a strong reputation for its ability to consistently deliver category-leading sales and market share growth. The company reported a 50% increase in net sales during the first quarter of fiscal 2025, marking its 22nd consecutive quarter of both sales growth and market share gains. The company’s success can be attributed to its innovative product offerings, strong distribution, strategic marketing efforts and ability to tap into key consumer trends.
The innovation strategy is a key driver of e.l.f. Beauty’s growth. The company has expanded its leadership in color cosmetics, with the number one or two positions across 18 segments, which represent more than 80% of its cosmetics sales. Recent product launches, such as the Soft Glam Satin Foundation and new items under the Naturium brand, have seen strong sales and consumer reception, reinforcing the company’s innovation-driven growth strategy.
ELF has been proactively broadening its retail footprint and expanding distribution channels to boost brand visibility and accessibility. e.l.f. Beauty has established strategic partnerships with major retailers such as Target (TGT - Free Report) and Ulta Beauty (ULTA - Free Report) , securing prominent shelf space in critical markets. At Target, e.l.f. Beauty has maintained its position as the top brand for six consecutive quarters, with its market share climbing from 13% to more than 20%. By diversifying its distribution avenues, e.l.f. Beauty aims to solidify its market position and attract a wider customer base across various regions.
Understanding the growing trend of online shopping, e.l.f. Beauty has been heavily investing in enhancing its digital and e-commerce capabilities. The company has focused on improving the user experience on its website, optimizing mobile platforms and leveraging digital marketing strategies to boost online sales and customer engagement. These initiatives are key to expanding its reach and driving growth in the increasingly competitive digital beauty market.
e.l.f. Beauty’s efforts to streamline operations, optimize its supply chain and manage costs have also contributed to its growth story. These initiatives have helped the company maintain healthy margins despite ongoing challenges in the broader economic environment.
e.l.f. Beauty's FY25 Forecast: Key Insights
In its first-quarter earnings, e.l.f. Beauty raised its guidance for fiscal 2025, reflecting strong business momentum. The company now expects net sales in the band of $1,280-1,300 million, suggesting 25-27% year-over-year growth. Earlier, management projected net sales in the range of $1,230-1,250 million, which indicated 20-22% growth.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are now expected in the band of $297-$301 million, up from the prior view of $285-$289 million. Management envisions adjusted earnings per share (EPS) for fiscal 2025 in the $3.36-$3.41 range compared with the earlier guided range of $3.20-$3.25. This raised outlook suggests that the company expects continued strong performance across its key business areas.
How Do Estimates Stack Up for ELF Stock?
Reflecting the positive sentiment around ELF, the Zacks Consensus Estimate for EPS has seen upward revisions. Over the past 30 days, analysts have increased their estimates for both the current and next fiscal year by 3.8% to $3.54 and by 3.2% to $4.48 per share, respectively. These estimates indicate expected year-over-year growth rates of 11.3% and 26.5%, respectively.
However, the consensus mark for the current-quarter EPS has gone down from 78 cents to 47 cents, indicating near-term concerns.
Image Source: Zacks Investment Research
Roadblocks on e.l.f. Beauty's Path
While e.l.f. Beauty's revised outlook for fiscal 2025 reflects strong performance and a positive long-term trajectory, the second quarter presents hurdles that could impact short-term profitability and margin expansion. Although the company has increased its annual net sales growth forecast, the second-quarter performance is expected to face strong comparisons from the previous year. Gross margin expectations for the second quarter of fiscal 2025 are projected to be flat year over year due to the timing of retailer activity and space expansion costs.
The company also plans to ramp up marketing and digital investments in the second quarter, with expenditure expected to increase from approximately 21% of net sales last year to a higher level. This is part of e.l.f. Beauty's strategy to sustain growth through enhanced brand visibility and digital engagement. However, this increased spending is anticipated to affect the adjusted EBITDA margin, which may be constrained in the low teens range for the second quarter. More significant margin improvements are only projected to occur in the latter half of the fiscal year as marketing expenses normalize and the Naturium acquisition completes a year in October.
e.l.f. Beauty contends with intense competition from both well-established mass-market and prestige beauty brands in a highly saturated industry. Despite its strong market position, ELF faces significant competition from major players like The Estee Lauder Companies (EL - Free Report) and Coty. While e.l.f. Beauty distinguishes itself by offering products at lower price points, this strategic focus on affordability potentially constrains the company's ability to raise prices and expand margins in a market where premium pricing often drives profitability and brand perception.
Moreover, as a company driven by consumer preferences, e.l.f. Beauty is sensitive to rapid shifts in consumer tastes and spending behavior. Broader macroeconomic factors, such as inflation and interest rates, could further impact consumer spending on items like cosmetics, posing additional risks to the company's growth and profitability.
ELF Stock Price Performance & Valuation Picture
The impact of these challenges is reflected in e.l.f. Beauty’s recent share price performance. The company’s shares have tumbled 10% over a month, underperforming the industry’s decline of 7.3%. The renowned cosmetics and skin care products company has also trailed the broader Zacks Consumer Staples sector and the S&P 500's respective growth of 3.7% and 3.2% during the same period. Additionally, this Oakland, CA-based company’s stock slipped below its 50-day moving average, suggesting a bearish trend.
Image Source: Zacks Investment Research
From a valuation perspective, e.l.f. Beauty still appears quite stretched. The stock is currently trading at a forward 12-month P/E ratio of 39.02, higher than the industry average of 24.33. This premium valuation implies high growth expectations, which may not be sustainable, given the current challenges. The company's Value Score of F further underscores these concerns.
Image Source: Zacks Investment Research
Investor Guidance for ELF
e.l.f. Beauty has consistently delivered sales and market share growth, fueled by innovative products, strategic retail partnerships and a strong digital presence. Its recent $500 million share repurchase plan highlights confidence in its strategy and financial health. With raised fiscal 2025 guidance, the company seems poised for continued success. However, short-term challenges, such as potential margin pressures from increased marketing spend, intense competition, and macroeconomic headwinds, remain. While e.l.f. Beauty's long-term outlook is strong, investors should weigh these risks and the stock's current valuation. Current stakeholders might consider holding the stock, while those looking to initiate a new position may wait for a more favorable entry point.
e.l.f. Beauty currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.