Shares of e.l.f. Beauty (NYSE:ELF) started the day with a giant leap higher, gaining as much as 11% in the first 30 minutes of the trading day. There was little doubt about why investors were so excited: The cosmetics maker and retailer released earnings after the close on May 21 and the numbers were beautiful.
Despite being a relatively small cosmetics company, e.l.f. Beauty put up impressive results in its just-ended fiscal 2020. The company gained 50 basis points of market share, increased sales 6%, and expanded its gross margin by three percentage points. Full year adjusted earnings declined a touch, but the roughly 4.5% year-over-year drop (on a higher share count) was really rather modest when compared against the many positives.
The fiscal fourth quarter, which was directly impacted by coronavirus containment efforts, was also strong, with sales increasing by 13%. A jump in online sales was the driving factor, and pulling the company's stores from the top line would have resulted in a 16% top-line advance. Adjusted earnings in the quarter came in at $0.10 per share, up from $0.06 per share a year earlier. Although management noted that COVID-19 has made the future a little hazy, the brand appears to be holding up relatively well despite a difficult retail environment. And, if the full-year performance is any indication, it has a bright future ahead once the pandemic is in the rear-view mirror.
Cosmetics is a competitive business, but e.l.f. Beauty appears to be not only holding its own against larger rivals, but actually gaining ground. COVID-19 will certainly be a major headwind for the company in the near term, however, long-term investors might still want to do a deep dive here.
Fiscal 2020 was a good year, but heed management's warning that near-term results could be less appealing. Wall Street liked what it read this time around, but it could just as easily decide that the first quarter of fiscal 2021 wasn't good enough -- even in the face of COVID-19. Indeed, fiscal 2020 may have set a fairly high bar. The stock, while down about 2.5% for the year, is now ahead of the S&P 500 index, which is off by roughly 8.5%.