E.l.f. Beauty (NYSE: ELF) is winning with both customers and shareholders lately as the cosmetics company expands overseas and invests in marketing on social media platforms.
The inexpensive cosmetics company is pouring money into marketing its lip gloss, eye shadow and skincare on TikTok where Gen Z-ers scroll for information about what brands are popular, keep up with their social connections and receive news and entertainment. E.l.f. Beauty increased its marketing and digital investments budget by 5% to $78 million during the first quarter.
E.l.f. Beauty not only sells its products at retailers such as Target and Dollar General, but also directly to consumers through its website, offering loyal shoppers promotions such as free shipping, free mini-sized products and bonus items and auto-delivery where products are shipped on a regular schedule. The company encourages customers to post their photos on social media via their “se.l.f.ie” gallery and offers a 20% discount for students when the products are purchased directly from their website.
The zealous strategy to advertise and market itself on TikTok appears to be paying off.
E.l.f. Beauty reported that net sales increased by 9% to $353.7 million during the first quarter.
Shares of the company jumped by 104.5% during the past six months. The stock has tumbled to $133.93 on September 5 since reaching a high of $217.40 on March 1, 2024. But over the past five years the stock increased by a whopping 601.57%.
E.l.f. Beauty is one of a few cosmetics companies that’s performing well with both investors and customers. Other cosmetics behemoths like Estee Lauder (NYSE: EL) have seen their shares slump during the past year.
Beauty brands are dealing with their own shrinking profit margins due to tariffs and higher interest rates as the tastes of consumers wane easily. Customers are dealing with their own challenges as groceries and rental prices have increased and the outlook on the economy appears to be murky.
But since E.l.f. Beauty’s products are more accessible to budget-conscious shoppers, the company is confident it can retain its current customers and attain new ones. The company is working to increase its market share, especially in countries outside of North America. Some of its products are still selling for as low as $3 and 75% of its items sell for under $10, which attracts shoppers who are fans of purchasing makeup and skincare, but don’t want to invest a larger amount of money.
The potential for E.l.f. Beauty to boost its market share increase appears to be high.
“We rate ELF Buy as we believe it is a structural growth story driven by innovation, captivating marketing…as well as the international and skincare growth opportunities,” TD Cowen analyst Oliver Chen wrote in a research note.
The $7.5 billion market cap company reported that sales in the U.S. grew by 5% in the first quarter. Overseas sales, which consist of less than a fifth of total revenue, already rose by 30% as its products are sold in more countries.
Sales during the second quarter could increase to double digits. Chief Financial Officer Mandy Fields estimated a second quarter rate “above the 9% net sales growth” compared to the first quarter, according to its earnings call. But Deutsche Bank analyst Stephen Powers gave a larger forecast of a 20% increase in sales during the second quarter.
The company’s purchase of skincare brand Rhode, which closed in early August, will help garner more revenue in the future since it produces over $50 million in sales each quarter.
E.l.f. Beauty has many opportunities to grow despite tariffs eating into its profit margin. The company could outperform its larger competitors whose price points exceed the budgets of Gen Z shoppers.
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