What happened

Shares of e.l.f. Beauty Inc. (NYSE:ELF) were soaring today after the cosmetics retailer posted a strong third-quarter earnings report. The company topped estimates on the top and bottom lines as it continues to make progress in its turnaround efforts, and shares were trading up 17.2% as of 11:43 a.m. EST on Tuesday.

A woman pursing her lips and holding up pink lipstick.

Image source: Getty Images.

So what

Revenue for e.l.f. fell 11% to $63.9 million due to a decline in sales to discount channels. Despite that slide, that result still beat estimates at $60 million. 

Gross margin in the quarter improved from 60% to 61%, due to changes in customer mix and margin-boosting innovations, though some of those improvements were offset by currency exchange fluctuations. However, adjusted selling, general, and administrative expenses rose from 40% to 45% of sales as the company absorbed the decline in revenue. Adjusted earnings per share slipped from $0.20 to $0.17, but that still easily beat expectations at $0.08. 

CEO Tarang Amin said: "We delivered growth in the specialty channel and demonstrated disciplined expense and balance sheet management. We are aggressively pursuing three strategic initiatives to improve business trends in tracked channels: thoughtfully increasing investment in the e.l.f. brand, focusing on key items, and optimizing 2019 shelf sets."

Now what

Looking ahead, e.l.f. lifted its guidance modestly, calling for adjusted EPS of $0.59 to $0.61, up from a previous range of $0.56 to $0.61. Management maintained its outlook for revenue growth in the low single digits.  

The stock is still down 41% year to date, so today's gains should be viewed in the context of its larger struggles. But e.l.f. seems to be taking some important steps to re-establishing itself as a leader in fast-fashion style cosmetics.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.