0001600033-25-000040
SEC filinge.l.f. Beauty's Q1 FY26 net sales grew 9% to $353.7M, driven by volume, but gross margin fell 215 bps to 69% due to tariffs, and net income dropped 30%.
For the three months ended June 30, 2025, e.l.f. Beauty reported net sales of $353.7 million, a 9% increase from $324.5 million in the prior year period. The growth was driven entirely by higher unit volume, with retailer channel sales up 8% and e-commerce channel sales up 17%. Gross profit increased 6% to $244.5 million, but gross margin contracted 215 basis points to 69.1% from 71.3%. The margin decline was primarily attributable to the impact of tariffs, partially offset by favorable foreign exchange, cost savings, and mix. Operating income decreased 4% to $48.7 million as selling, general and administrative expenses grew 8% to $195.8 million. SG&A as a percentage of net sales improved to 55% from 56%, with increases in professional fees, retail fixturing, and marketing spend partly offset by lower compensation and operations costs. Net income fell 30% to $33.3 million, driven by a $17.8 million income tax provision (effective rate 34.8%) compared to a $0.3 million tax benefit in the prior year (effective rate -0.7%), reflecting discrete tax benefits that did not recur.
The MD&A does not provide segment-level financial breakdowns. The company operates as a single reporting segment across its brand portfolio (e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People, Keys Soulcare). Revenue growth was broad-based across channels, with no specific segment momentum discussed beyond the overall retail and e-commerce performance.
Management highlights the ongoing impact of U.S. tariffs on products sourced from China, which have been subject to a 25% tariff since May 2019, with additional tariffs announced in early 2025. To mitigate exposure, the company raised prices globally effective August 1, 2025, and is exploring production shifts outside of China. On August 5, 2025, the company completed the acquisition of rhode, a multi-category lifestyle beauty brand, for $800 million (including $600 million cash and $200 million stock, plus potential earnout of up to $200 million). The acquisition was funded through an incremental $600 million term loan and cash. No forward guidance on revenue or margins is provided. Liquidity remains strong with $170 million cash and $243.3 million available under the revolving credit facility as of June 30, 2025.
As of June 30, 2025, e.l.f. Beauty held $170.0 million in cash and cash equivalents, up from $148.7 million at March 31, 2025. Total assets were $1.31 billion. The company had $256.7 million in long-term debt under its revolving credit facility (New Revolving Facility), with no current portion. Shareholders' equity stood at $804.9 million, driven by net income of $33.3 million and stock-based compensation. Inventory decreased to $170.4 million from $187.2 million as of March 31, 2025.
The Notes disclose operating lease commitments with total undiscounted payments of $81.3 million as of June 30, 2025, including $2.3 million for the remainder of fiscal 2026 and $45.4 million thereafter. No other material purchase commitments or contractual obligations were reported.
Buybacks: The company has a $500 million share repurchase program authorized on August 27, 2024, of which $450.0 million remained as of June 30, 2025. No shares were repurchased during the quarter. Dividends: None declared. Debt: Total debt of $256.7 million (all long-term) under the New Revolving Facility, bearing interest at approximately 5.4% as of June 30, 2025. The maturity date is March 3, 2030. Capex: $7.1 million spent on property and equipment during the quarter.
e.l.f. Beauty operates as a single reportable segment. Geographic revenue split: US $284.6 million (80.5%) and International $69.1 million (19.5%) for the three months ended June 30, 2025. The company does not disclose segment-level operating income or margin.
Operating cash flow (CFO) of $27.2M for Q1 FY2026 was lower than net income of $33.3M, reflecting significant working capital investments. The primary drag was a $46.2M increase in accounts receivable, partially offset by a $18.7M decrease in inventory. This contrasts with the prior year where CFO of $1.3M was far below net income of $47.6M due to even larger working capital outflows (receivables +$31.8M, inventory +$8.1M, prepaids +$30.5M). The improvement in CFO was driven by better inventory management and lower prepaid spending.
Capital expenditures of $7.1M (26% of CFO) increased sharply from $0.8M (63% of CFO in prior year, but on a much smaller base). The company is investing in property and equipment, consistent with growth.
Financing activities provided only $0.1M from stock issuance, with no share repurchases or dividends. Overall, the company generated positive free cash flow (CFO minus capex) of $20.1M, though not explicitly stated.
No one-time items noted. The large swing in accounts receivable and inventory suggests cyclical working capital needs. The prior year's CFO was unusually low due to heavy working capital build.