Acquisition Analysis - ELF Beauty's acquisition of Road for $1 billion is being questioned, especially with increasing tariffs [1][2] - The acquisition aims to build a cosmetics empire for ELF Beauty [2][3] Pricing Strategy & Tariffs - Tariffs have led ELF Beauty to increase prices by $1, marking the second price hike in 3 years [1] - The price increase may impact ELF Beauty's reputation for affordability [1] Customer Perception - Customers value ELF Beauty's transparency and creative advertising [2] - ELF Beauty is known for offering "dupes" or premium knockoffs at affordable prices [2] Brand Loyalty - ELF Beauty has cultivated a devoted fan base, particularly on social media [1]

Core Insights - E.l.f. Beauty experienced a 30% decline in net income in its first fiscal quarter following the announcement of President Trump's tariffs, leading to an 11% drop in share price after the earnings report [1] - Despite the short-term challenges, the CEO emphasized the company's 26 consecutive quarters of net sales growth and ongoing international and retail expansions, including a $1 billion acquisition of Hailey Bieber's skincare brand, Rhode [2][5] - E.l.f. has gained popularity through social media marketing, particularly on platforms like TikTok and Roblox, and is recognized as the top color cosmetics brand in the U.S. by units sold [3][4] Financial Performance - The company celebrated its first billion-dollar fiscal quarter in May 2024, with a 77% sales spike, although net sales growth has slowed in subsequent quarters [5] - The acquisition of Rhode, which generated $212 million in net sales within three years, will enhance E.l.f.'s presence in Sephora stores in the U.S. this fall, financed by $600 million in debt [5] Market Position - E.l.f. is positioned as a challenger to established brands like Estée Lauder and L'Oréal, and is particularly favored by Gen Z, Gen Alpha, and millennial consumers [4] - Analysts express cautious optimism regarding the company's growth potential, suggesting it could become the number one mass cosmetics company globally over time [4]

Company Overview & Strategy - E l f Beauty initially sold affordable makeup products online and grew into a multi-million dollar company, partnering with retailers like Target [6] - The company's strategy is fueled by marketing and offering dupes of popular prestige products at bargain prices [8] - E l f adapts and creates new products based on customer feedback monitored on social media [12][13] - The company shifted production away from China to diversify its supply chain, moving from 100% to 75% sourced from China [15] Financial Performance & Market Position - E l f posted its first billion-dollar year in May 2024 after sales spiked 77% [3] - In fiscal year 2025, net sales grew by 28% to $13 billion, with international sales also growing by 28% [21] - E l f was the number one color cosmetics brand by units sold and number two by dollar share in 2024 [21] Acquisition & Expansion - E l f acquired Hailey Bieber's skincare brand Rhode in a $1 billion deal [2][23] - Rhode grew to $212 million in net sales in three years and more than doubled its customer base in fiscal year 2025 [24] - The Rhode deal was financed with $600 million of debt [26] Challenges & Risks - Heavy reliance on China caused profits to drop 30% in Q1 2026 [4] - Tariffs are expected to increase the cost of goods sold by at least $50 million annually, potentially causing net income and profits to each fall 30% [28]

Investment Rating - The report does not explicitly provide an investment rating for e.l.f. Beauty, but it indicates a positive outlook for the company's performance in FY26H1, suggesting potential for growth [4]. Core Insights - e.l.f. Beauty reported a net sales increase of 9% year-over-year for FY26Q1, reaching $354 million, with a 5% growth in the U.S. market and a 30% increase in international markets [2][9]. - The company's gross margin declined by approximately 2.15 percentage points to 69%, primarily due to tariffs, although this was partially offset by favorable foreign exchange impacts [2][9]. - The company maintained a strong market share growth of 2.1%, marking the 26th consecutive quarter of growth [2][9]. - Adjusted EBITDA for FY26Q1 was $87.1 million, up 12% year-over-year, while net profit decreased by 30% to $33.31 million due to the absence of income tax benefits [3][10]. - e.l.f. Beauty completed the acquisition of Rhode for $800 million, which is expected to enhance growth through increased brand awareness and distribution [6][12]. Summary by Sections Financial Performance - FY26Q1 net sales were $354 million, a 9% increase year-over-year, with U.S. sales up 5% and international sales up 30% [2][9]. - Gross margin decreased to 69% due to tariffs, with SG&A expenses at $196 million, accounting for 55% of net sales [2][9]. - Adjusted EBITDA was $87.1 million, representing 25% of net sales, while net profit was $33.31 million, down 30% year-over-year [3][10]. Market Outlook - The company did not provide a full-year financial forecast for FY26 due to uncertainties from tariffs but remains optimistic about FY26H1 performance, expecting net sales growth to exceed 9% [4][11]. - The adjusted EBITDA margin for FY26H1 is projected to be around 20%, down from 23% in the previous year, influenced by tariffs and marketing expenditures [4][11]. Strategic Initiatives - e.l.f. Beauty's acquisition of Rhode is expected to significantly enhance market coverage and growth potential, with plans to launch Rhode products in major retail outlets [6][12]. - The company is implementing strategies to mitigate tariff impacts, including pricing adjustments and supply chain optimization [4].

Financial Data and Key Metrics Changes - In Q1 2026, net sales grew by 9% on top of a 50% growth in Q1 of the previous year, reaching $354 million [5][32] - Adjusted EBITDA was $87 million, up 12% year-over-year [5][34] - Gross margin for Q1 was 69%, down approximately 215 basis points compared to the prior year, primarily due to incremental tariff costs [33] - Adjusted net income was $51 million, or $0.89 per diluted share, compared to $64 million, or $1.10 per diluted share a year ago [35] Business Line Data and Key Metrics Changes - In color cosmetics, e.l.f. holds the number one unit share brand with approximately 15% share, and the number two share brand with approximately 13% share, more than double from three years ago [7][14] - Skincare now drives nearly 20% of global consumption, more than double the level from a few years ago [17] - The Halo Glow Skin Tint was the top-selling cosmetics product on e.l.f.'s website in Q1 [14][21] Market Data and Key Metrics Changes - International net sales grew by 30% in Q1, with significant growth in existing markets and expansion into new markets [23][25] - In the UK, e.l.f. Cosmetics outpaced category growth by three times in Q1, increasing its rank from the number four brand to the number three brand [23] - International sales have increased from $28 million six years ago to $266 million today, representing 20% of total sales [25] Company Strategy and Development Direction - The company aims to more than double its business over the coming years, focusing on color cosmetics, skincare, and international expansion [6][31] - The acquisition of Rhode is expected to enhance e.l.f.'s position in accessible beauty and drive brand awareness [26][27] - The company plans to leverage its marketing and innovation capabilities to continue gaining market share across segments [15][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to continue gaining market share and capturing significant growth opportunities despite tariff uncertainties [26][40] - The company is monitoring consumer response to recent price increases and expects to maintain strong performance in the U.S. market [78][79] - Management highlighted the importance of innovation and value proposition in driving consumer engagement and sales growth [12][19] Other Important Information - The company ended the quarter with $170 million in cash, up from $109 million a year ago, and generated $20 million in free cash flow [35][36] - The transition to SAP was reported as successful, indicating strong operational capabilities [37][38] Q&A Session Summary Question: Can you talk about how much inventory might be trapped in at the 170% rate versus the 50% rate? - Management indicated that inventory consists of a mixture of tariff rates, with more of the 170% expected to flow through in Q2, leading to lower gross margins [45][46] Question: Can you expand on the greater than 9% sales growth for the first half? - Management confirmed that the addition of Rhode will help drive Q2 sales higher than Q1, with continued positive performance in the e.l.f. business [51][53] Question: What are your thoughts on the U.S. core business growth expectations? - Management remains optimistic about the U.S. business, expecting continued growth despite potential challenges from pricing and consumer behavior [64][66] Question: How have retail partners reacted to the price increases? - Overall acceptance of the price increase has been good, with transparency in communication contributing to positive feedback [81][82] Question: What is the expected revenue contribution from Road? - Management did not provide specific revenue figures but expressed confidence in Road's long-term accretive potential [124]

Financial Data and Key Metrics Changes - In Q1 2026, net sales grew by 9% following a 50% growth in Q1 2025, reaching $354 million [4][34] - Adjusted EBITDA increased by 12% to $87 million, with adjusted net income at $51 million or $0.89 per diluted share, down from $64 million or $1.10 per diluted share a year ago [34][37] - Gross margin for Q1 was 69%, down approximately 215 basis points year-over-year due to tariff costs [35] Business Line Data and Key Metrics Changes - In color cosmetics, e.l.f. holds a 15% unit share, making it the number one brand, with significant growth in market share over the past three years [6][13] - Skincare now accounts for nearly 20% of global consumption, more than double from previous years, with e.l.f. Skin and Naturium being the fastest-growing brands [16][20] - The Halo Glow Skin Tint was the top-selling product in Q1, showcasing the success of innovation strategies [10][13] Market Data and Key Metrics Changes - International net sales grew by 30% in Q1, with significant growth in the UK, where e.l.f. outpaced category growth by three times [26][28] - The company has expanded its presence in new markets, including a successful launch in over 1,200 stores in the Netherlands and Belgium [27][28] - International sales now represent 20% of total sales, up from 10% six years ago, indicating strong growth potential [28] Company Strategy and Development Direction - The acquisition of Rhode is expected to enhance e.l.f.'s position in the beauty market, with plans to accelerate brand awareness and expand distribution [5][30] - The company aims to double its business over the coming years by capitalizing on opportunities in color cosmetics, skincare, and international markets [5][29] - E.l.f. continues to focus on innovation and disruptive marketing to maintain its competitive edge in the beauty industry [14][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to gain market share despite challenges from tariffs and a competitive landscape [29][41] - The company is monitoring consumer response to recent price increases and expects to see continued growth in the first half of the year [41][80] - Future guidance will depend on clarity regarding tariffs, with expectations for net sales growth above 9% in the first half of the year [41][43] Other Important Information - The company ended Q1 with $170 million in cash, up from $109 million a year ago, and generated $20 million in free cash flow [37][39] - E.l.f. is transitioning to SAP for its ERP system, which is expected to enhance operational efficiency [39][40] Q&A Session Summary Question: Can you talk about how much inventory might be trapped in at the 170% rate versus the 50% rate? - Management indicated that inventory consists of a mix of tariff rates, with expectations for more 170% inventory to flow through in Q2, leading to lower gross margins [46][48] Question: Can you expand on the greater than 9% sales growth for the first half? - Management confirmed that the addition of Rhode will contribute to higher sales growth in Q2, and they are optimistic about the e.l.f. business performance [54][56] Question: What channels or partners have been stronger or weaker in the U.S. market? - Management noted growth across brick-and-mortar and e-commerce channels, but did not provide specific details on weaker channels [90][92] Question: How is the company managing the Road acquisition and its impact on margins? - Management stated that while Road is expected to be accretive in the long term, there will be initial dilution in Q2 margins due to the lack of sell-in to Sephora [124][125] Question: Can you provide context on the gross margin expectations for Q2? - Management acknowledged that Q2 gross margins will be impacted by higher tariff costs, but pricing benefits from recent increases are expected to help offset some of this pressure [130][131]

Core Viewpoint - The acquisition of beauty brand Rhode by elf Beauty for $1 billion highlights the current trend of active mergers and acquisitions in the global consumer sector, showcasing the potential for rapid growth and market disruption by emerging brands [3][5][23]. Group 1: Acquisition Details - elf Beauty will acquire Rhode for $600 million in cash and $200 million in newly issued common stock, with an additional potential payment of $200 million based on the brand's growth over the next three years [7]. - This acquisition marks elf Beauty's largest deal to date and positions Rhode's founder, Hailey Bieber, as Chief Creative Officer and Innovation Lead, responsible for creative direction and marketing [8][10]. Group 2: Rhode's Market Performance - Founded just three years ago, Rhode has achieved over $212 million in annual net sales, primarily through a direct sales model and a limited product range of only 10 items [21]. - The brand's standout product, a lip balm, sold 1 million units in its first year, generating $16 million in revenue from a single SKU [21]. - Rhode's marketing strategy has effectively utilized social media, amassing 1.5 million followers on TikTok and over 67 million views on related topics on Xiaohongshu [21]. Group 3: Industry Trends - The consumer sector is witnessing a surge in mergers and acquisitions, with notable transactions including Skechers' agreement to be acquired for approximately $9.4 billion and Prada's acquisition of Versace for $1.375 billion [24][26]. - The consumer industry is perceived as resilient and attractive for investment during economic fluctuations, leading to increased capital interest in acquiring quality assets [26][28]. - Investment firms are actively raising funds for large-scale acquisitions, with L Catterton recently securing $11 billion in committed capital, indicating a strong focus on merger opportunities in the consumer space [28][29].

Core Insights - e.l.f Beauty is acquiring Rhode for up to $1 billion, which could be transformational for the company [1][2] - The acquisition comes at a time when e.l.f's sales growth has slowed to 4% in Q4 of fiscal 2025 after a 40% increase in the first nine months [3] - Rhode, launched by Hailey Bieber in 2022, has quickly grown its sales to $212 million with minimal advertising [6] Financial Performance - e.l.f's sales growth has been impacted by tariffs, with import taxes from China reaching over 145% at one point, now reduced to 30% [5] - The company plans to raise prices by $1 on all products starting in August to offset tariff costs [5] - e.l.f currently trades at a forward P/E ratio of 32 and a PEG ratio under 0.6, indicating it may be undervalued [13] Market Position and Strategy - Rhode's products will be available in Sephora stores in the U.S., Canada, and the U.K., which is expected to enhance growth [7] - Rhode appeals to a more affluent customer base and complements e.l.f's strength in cosmetics with its focus on skincare [8] - e.l.f has opportunities to expand Rhode's product assortment and retail distribution significantly [11] Growth Potential - The core e.l.f business has solid growth potential, especially in international markets and adjacent categories like fragrance and hair care [12] - The acquisition of Rhode is seen as a significant opportunity for e.l.f to enhance its market presence and growth trajectory [14]

Group 1 - e.l.f. Beauty announced the acquisition of Hailey Bieber's skincare brand Rhode for a total valuation of $1 billion, making it one of the largest celebrity beauty acquisitions in recent years [3][5] - The deal includes $600 million in cash, $200 million in e.l.f. Beauty stock, and an additional $200 million contingent on the company's growth over the next three years [3][5] - Hailey Bieber is set to become a billionaire as a result of this acquisition, marking a significant shift in her financial status [3][5][24] Group 2 - Rhode's annual sales have exceeded $100 million, indicating strong market performance since its launch [10][11] - The brand has expanded its product line from three initial products to include tinted lip balms and blushes, and will soon be available in Sephora stores [13] - Hailey Bieber has expressed her vision for Rhode to reach a global audience and has acknowledged the support of her team in achieving this milestone [7][8] Group 3 - The acquisition reflects a broader trend in the beauty industry where celebrity brands are gaining significant traction and market share [11][24] - e.l.f. Beauty's strategic move to acquire Rhode aligns with its growth objectives and enhances its portfolio in the competitive beauty market [3][11] - The partnership positions Hailey Bieber as a strategic advisor for e.l.f. Beauty, further integrating her brand into the larger corporate structure [11][24]

Core Insights - Hailey Bieber's beauty brand Rhode has signed a $1 billion deal with e.l.f. Beauty, marking a significant milestone in her entrepreneurial journey [2][3] - Following the deal, Hailey is set to receive $800 million in cash and stock, with the potential for an additional $200 million based on sales growth over the next three years, totaling $1 billion [3] - Rhode's net sales reached $212 million in the past 12 months, indicating strong market performance and brand success [9] Company Overview - Rhode was founded by Hailey Bieber in 2020 and launched skincare and lip products in 2022, achieving notable success and recognition [16] - Hailey has taken on the role of Chief Creative Officer and Innovation Lead at Rhode, while also becoming a strategic advisor for e.l.f. Beauty [9] Market Performance - The partnership with e.l.f. Beauty is expected to enhance Rhode's market presence and drive further growth, aligning with Hailey's vision of expanding the brand globally [7] - The deal reflects the increasing trend of celebrity-led brands in the beauty industry, which often leverage personal branding and social media influence for market penetration [2][7]