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Why e.l.f. Beauty Has Momentum

By Pearl Wang – Oct 15, 2020 at 8:18AM

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Cosmetic specialist e.l.f. Beauty is appealing to consumers' preferences for cruelty-free and healthy products, and fueling growth through innovative partnerships.

e.l.f. Beauty (ELF 2.86%), the American cosmetics company known for its vegan and cruelty-free products, has boosted results with its strong offerings, digital business, and partnerships. The company recently moved up to the #2 position among cosmetics brands -- up from #4 last year -- in investment bank Piper Sandler's latest "Taking Stock with Teens" survey. 

The company is also incorporating wellness principles, including healthy ingredients, into its offerings, which is proving increasingly important to consumers.

Illustration of numerous lipsticks of varying colors.

Image source: Getty Images.

e.l.f.'s latest results are impressive

e.l.f. Beauty's fiscal first-quarter results (three months ended June 30, 2020) were strong, buoyed by impressive digital performance which offset the effect of temporary store closures due to COVID-19. The beauty company's sales beat consensus projections, increasing by 8% year over year, its sixth consecutive quarter of net sales growth. Earnings per share during the quarter came in at $0.17, above consensus expectations of $0.04.

The beauty brand is growing in popularity, as evidenced by a trend of top beauty retailers making more space for e.l.f. products. CEO Tarang Amin noted on the first quarter earnings call that "...given the strength of [our] productivity, innovation and consumer engagement, Walmart and Ulta Beauty plan to expand e.l.f. space this fall in a subset of their doors. This expansion will allow us to increase our skincare assortment at both customers." 

Skincare and wellness are longer-term drivers of growth at e.l.f. Beauty. Skincare comprised 6% of the company's tracked retail channel consumption in fiscal year 2020, and grew to 9% in the first quarter of 2021. Skincare is also making up a growing percentage of digital business, at 25% of revenue at

The company has shifted away from ingredients like parabens and phthalates and is focusing on wellness and natural ingredients like Cannabis Sativa and niacinamide. e.l.f. acquired cruelty-free, clean beauty company W3LL People in February 2020 to further expand its presence in wellness and healthy beauty. CEO Amin spoke about why the W3LL acquisition makes sense for e.l.f. on the first-quarter earnings call: "This acquisition is strategically important as consumers are becoming increasingly conscious of the ingredients in their products."

It's a winner with teens

As mentioned above, e.l.f. is the number two-preferred makeup brand for teenagers, according to Piper Sandler. Piper Sandler cited social media platform Tik Tok as a key driver in boosting e.l.f.'s popularity.

The beauty company partners with other brands that are beloved by teens for popular collaborations that get press and attention. In May 2020, e.l.f. teamed up with fast-casual chain Chipotle for a limited edition (and supply at only 100 kits made) makeup collection. A further incentive for shoppers was a $15 Chipotle gift card included in the kit.

Gaining more brand awareness via influencers

In August, e.l.f Beauty announced a new lifestyle beauty brand, code-named Project Superwoman, in which the company will partner with musician and artist Alicia Keys. The brand will be available online and in stores in 2021. Promising an "inclusive point of view" and "an authentic voice," the brand will offer cruelty-free, dermatologist-developed, and skin-friendly products. CEO Amin says of the launch: "I'm excited and very energized about the opportunities for us to reach new audiences in creative ways and to continue to lead in category innovation."

e.l.f. already has a multi-year, multi-product pipeline created with Alicia Keys and Dr. Renee Snyder, a dermatologist and founder of W3LL People. The beauty company sees these types of product innovations as essential to growth. Amin noted on the earnings call: "We believe strategic extensions are key to our long-term growth as we evolve from a single brand to multi-brand beauty company."

This year, e.l.f. also launched a collaboration with popular beauty influencer Jkissa, inspired by rainbows, glitter, and dogs. The collection with Jkissa offers cruelty-free, vegan products. As part of the partnership, e.l.f. donated $1 to Angel City Pit Bulls, a Los Angeles non-profit dog rescue group, for each selfie posted with a pet and hashtagged #eyeslipsfacepaws. This appeals to shoppers who prefer to spend money with companies that align with their values.

e.l.f. is a consumer discretionary company that is hitting on secular trends that are increasingly important to shoppers. As clean ingredients, social values, and cruelty-free products become part of buying decisions, e.l.f. appears well-positioned to grow its business. Investors may want to look into this company that's exhibiting formidable execution in the beauty space.

Pearl Wang owns shares of Walmart Inc. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Ulta Beauty. The Motley Fool has a disclosure policy.

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