ELF Beauty: Cruelty-Free Makeup And Teen Appeal Boost Sales


ELF Beauty (ELF) makes beauty and skin care products that sell at department and specialty stores and on online sites. For the highly brand-conscious yet price-sensitive users of cosmetics, ELF Beauty offers a disruptive range of leading brands at value prices. This, and the shuttering of its retail operations three years ago, has helped lift the company to record earnings in recent quarters.


ELF has also quickly gained in popularity due to its plant-based, animal-testing-free products.

ELF Beauty: Strong Revenue, Earnings Record

The Oakland, Calif.-based company runs four brands: ELF Cosmetics, ELF Skin, Well People and Keys. Sales grew for the 15th straight quarter in the period ended September 30. Revenue from its plant-powered products grew 33% to $122.3 million through the company’s retail and e-commerce channels.

Earnings performance has been a little more choppy. Earnings per share of 36 cents showed strong 71% growth in the September quarter. But EPS is forecast to drop 5% in the fiscal third quarter, according to FactSet. Cash on hand at the end of the quarter was $85 million, more than double the year-ago level of $42 million.

The cosmetics company gave an upbeat outlook for the year ending in March 2023. Management now anticipates sales growth of  22%- 24%, revised upward from 14%-16%.

In comparison, Estee Lauder (EL), a global leader in the “prestige makeup” category, saw sales fall by 11% to $3.9 billion from $4.4 billion for the September quarter. Earnings of $1.42 a share fell 24% from $1.89. The makeup company also lowered its outlook due to China-related issues.

Jefferies analysts believe that the company’s sales are more dependent on China’s markets than its peers. ELF Beauty’s 100% cruelty-free policy keeps its products out of China since animal testing is required by law there.

Morgan Stanley analyst Dara Mohsenian, JPMorgan’s Andrea Teixiera and Piper Sandler’s Erinn Murphy have an overweight rating on the stock. Raymond James’ Olivia Tang rates the stock an outperform.

Mohsenian  and Tang had a price target of $50 while Teixiera had a lower target of $48 for the stock. Shares of the makeup stock have surged past 50 after earnings on Nov. 2. Murphy has a price target of 55.

Cosmetics Global Market Growth

According to Precedence Research estimates, the global cosmetics market will grow from $341 billion in 2020 to over $560 billion by 2030. The industry is a highly competitive one, with several large caps like L’Oreal (LRLCY) and Estee Lauder and smaller entrants like ELF.
Since 2008, ELF Beauty has been growing its footprint through big-box retailers like Target (TGT) and Walmart (WMT). ELF’s cosmetics also sell at drugstores like CVS (CVS) and Rite Aid (RAD).
ELF closed its own stores just ahead of the pandemic in 2019, shifting its focus to national retailers and e-commerce. Specialty stores like Ulta (ULTA) and Sephora also sell ELF makeup. In addition, the company has an international presence and sells at Superdrug and Boots in the U.K.

In online sales, faces competition from and to a lesser extent from

Private equity firm TPG Growth in 2014 acquired a majority stake in the makeup company. The company raised $141 million in its IPO in 2016. In 2020, ELF Beauty bought W3LL for $27 million in cash. W3LL has a strong record of being cruelty-free and using plant products.

Makeup Company’s ESG Track Record

ELF Beauty boasts of being an ESG play that is 100% free of animal testing and is certified as cruelty free by People For The Ethical Treatment of Animals (PETA). The makeup business also claims a “clean” profile. To claim that, it stays away from more than 1,600 ingredients such as parabens, phthalates and sulfates that are restricted by the FDA and the European Union Cosmetic Regulation.

ELF also offers 40 Environmental Working Group (EWG) Verified products, the industry standard for “clean and healthy” beauty products. According to Chairman and CEO Tarang Amin, the makeup company reformulated over 350 stock keeping units, or SKUs, to comply with its standards of “clean.”

In August, its third-party manufacturing facility became Fair Trade Certified. Fair Trade standards “promote sustainable livelihoods and safe working conditions for factory employees, protection of the environment and transparent supply chain.”

Strong Teen Appeal

ELF’s prestige and mass value combination as well as its ESG campaign make it particularly attractive to teens. A recent Piper Sandler report ranked ELF the top preferred cosmetic brand among teens, with 16% of total makeup sales for the demographic. Teens preferred discount channels, which saw 12% of teen spending on makeup in 2022 — a segment on which ELF focuses.

ELF Beauty has a strong presence on TikTok and Twitch. Consumers age 18 to 24 accounted for 32% of visitors to, followed by age 25 to 34 at 24% of visitors.

ELF ranks first in IBD’s cosmetics and personal care group. The makeup stock has a perfect Relative Strength Rating of 99 and strong Composite Rating of 97. Shares are extended over a cup-with-handle base and buy point of 33.73.
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