Please ensure Javascript is enabled for purposes of website accessibility

Why e.l.f. Beauty Stock Dropped 10%

By Rich Smith - May 9, 2019 at 2:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

e.l.f. shareholders aren't pleased with the big quarterly loss -- or the weak guidance.

What happened

It's May, three months after cosmetics seller e.l.f. Beauty (ELF 2.07%) last reported earnings, and you know what that means: It's time for e.l.f. stock to go down again.

Yesterday after close of trading, e.l.f. Beauty reported the results of its "transition period ended March 31, 2019" -- a quarter that marks both "Q1 2019" for e.l.f. and, because the company is switching fiscal calendars, also the end of "fiscal 2019" as a whole. Whatever you call it, though, the numbers e.l.f. reported for this just-ended quarter were not great.

e.l.f. stock dropped as much as 19% in response to the news earlier today and remains down 9.8% as of 1:45 p.m. EDT.

Frowning child wearing Santa elf hat.

Image source: Getty Images.

So what

Sales in the quarter ending in March increased a bare fraction of 1%, to $66.1 million. Profits on those sales, however -- well, there were none. Profitable by a penny a share in Q1 2018, this year e.l.f. lost $0.37 per diluted share.

Granted, e.l.f. management tried to put a brave face on the news, arguing that sales actually increased something closer to 3% "after excluding the impact of [closing 22 retail ] e.l.f. stores." But even so, gross margins were flat at 61%, while operating costs grew to 56% of sales, eating deep into profits. After accounting for restructuring costs, this left e.l.f. with a loss on the bottom line.

Now what

With its "transition period" now behind it, e.l.f. says its results for the period it's now designating "fiscal 2019" were $268 million in sales, resulting in $0.66 per share in earnings. The next 12 months, which will henceforth be known as "fiscal 2020," should see between $235 million and $245 million in sales (so a decline of about 10%) and earnings of between $0.35 and $0.39 per share.

Taken at the midpoint, therefore, e.l.f. is saying investors can expect earnings to decline by a steep 44% over the course of the coming year -- which sounds to me like a great reason to sell e.l.f. stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

e.l.f. Beauty Stock Quote
e.l.f. Beauty
$21.69 (2.07%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.