e.l.f. Beauty Inc.

11/10/2025 | Press release | Distributed by Public on 11/10/2025 12:48

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's discussion and analysis of financial condition and results of operations.
Management's discussion and analysis of financial condition and results of operations ("MD&A") should be read together with the MD&A presented in the Annual Report on Form 10-K for the year ended March 31, 2025 (the "Annual Report") and the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"), which include additional information about our accounting policies, practices and the transactions underlying our financial results.
Overview and Business Trends
e.l.f. Beauty, Inc., a Delaware corporation ("e.l.f. Beauty" and together with its subsidiaries, the "Company"), is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty free cosmetics and skin care products. The Company's mission is to make the best of beauty accessible to every eye, lip and face.
We believe our ability to deliver cruelty free, clean, vegan and premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. Additionally, we believe the combination of our passionate team of owners, value proposition, powerhouse innovation, disruptive marketing engine and productivity model have positioned us well to navigate the competitive beauty market.
The Company's family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People, Keys Soulcare, and rhode. The Company's brands are available online and across leading beauty, mass-market and specialty retailers. The Company has strong relationships with its retail customers such as Target, Walmart, Ulta Beauty, Amazon and other leading retailers that have enabled the Company to expand distribution both domestically and internationally.
Potential Impact of Tariffs
The majority of our products are sourced and manufactured in China and have been subject to a US 25% tariff since May 2019. Furthermore, in March and April 2025, the Trump administration announced a series of additional tariffs on products from countries worldwide. Since then, some of these tariffs have been increased, reduced, or temporarily paused.
The US tariff policies are continuing to evolve. As a result, our risks and mitigation plans will also continue to evolve as further developments arise. Any alteration of trade agreements and terms between China and the United States, including limiting trade with China, imposing additional tariffs on imports from China and potentially imposing other restrictions on imports from China to the United States may result in further or higher tariffs or retaliatory trade measures by China. We are in the process of determining our incremental tariff cost exposure in light of continuing changes to tariff policies, and the full extent of our potential mitigation plans, as well as the associated timing to implement such plans. To mitigate our risk of ongoing exposure to tariffs, the Company raised prices globally for all products sold as of August 1, 2025. The Company may also seek to shift production outside of China into regions where we expect tariffs to be lower and to source the same products in more than one region, to the extent it is possible and not cost-prohibitive.
See the risk factor titled "Additional US tariffs or other restrictions placed on imports, retaliatory trade measures taken by other countries and resulting trade wars may have a material adverse impact on our financial condition and results of operations" included as part of Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for additional information regarding risk related to tariffs.
Our Acquisition of rhode
On August 5, 2025, we consummated the acquisition of HRBeauty LLC ("rhode"), the fast-growing, multi-category lifestyle beauty brand founded by Hailey Bieber for a purchase price of $896.5 million in a combination of cash, equity consideration, and potential earnout.
Fifth Amendment to Amended Credit Agreement
On August 5, 2025, we entered into the Fifth Amendment to the Amended and Restated Credit Agreement, pursuant to which we borrowed an incremental term loan in a principal amount equal to $600.0 million (the "Incremental Term Loan"), together with available cash from our balance sheet and additional borrowings under our Amended Revolving Credit Facility, to consummate and pay related fees and expenses in connection with our acquisition of rhode.
Seasonality
Our results of operations are subject to seasonal fluctuations, with net sales in the third and fourth fiscal quarters typically being higher than in the first and second fiscal quarters. The higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season and customer shelf reset activities, respectively. Lower inventory builds from our retailers in preparation for the holiday season or shifts in customer shelf reset activity could have a disproportionate effect on our results of operations for the entire fiscal year. To support anticipated higher sales during the third and fourth fiscal quarters, we make investments in working capital to ensure inventory levels can support demand. Fluctuations throughout the year are also driven by the timing of product restocking or rearrangement by our major retail customers as well as expansion into new retail customers. Because a limited number of our retail customers account for a large percentage of our net sales, a change in the order pattern of one or more of our large retail customers could cause a significant fluctuation of our quarterly results or impact our liquidity.
Results of operations
The following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented:
Three months ended September 30, Six months ended September 30,
(in thousands) 2025 2024 2025 2024
Net sales $ 343,936 $ 301,075 $ 697,675 $ 625,552
Cost of sales 105,078 87,016 214,276 180,210
Gross profit 238,858 214,059 483,399 445,342
Selling, general and administrative expenses 231,142 186,141 426,974 366,716
Operating income 7,716 27,918 56,425 78,626
Other (expense) income, net (1,878) 3,791 3,159 3,978
Interest expense, net (9,153) (3,761) (11,785) (7,426)
Loss on extinguishment of debt (674) - (674) -
(Loss) Income before provision for income taxes (3,989) 27,948 47,125 75,178
Income tax benefit (provision) 6,985 (8,928) (10,818) (8,603)
Net income $ 2,996 $ 19,020 $ 36,307 $ 66,575
Three months ended September 30, Six months ended September 30,
(percentage of net sales) 2025 2024 2025 2024
Net sales 100 % 100 % 100 % 100 %
Cost of sales 31 % 29 % 31 % 29 %
Gross margin 69 % 71 % 69 % 71 %
Selling, general and administrative ("SG&A") expenses 67 % 62 % 61 % 59 %
Operating income 2 % 9 % 8 % 13 %
Other (expense) income, net (1) % 1 % - % 1 %
Interest expense, net (3) % (1) % (2) % (1) %
Loss on extinguishment of debt - % - % - % - %
(Loss) Income before provision for income taxes (1) % 9 % 7 % 12 %
Income tax benefit (provision) 2 % (3) % (2) % (1) %
Net income 1 % 6 % 5 % 11 %
Comparison of the three months ended September 30, 2025 to the three months ended September 30, 2024
Net sales
Net sales increased $42.9 million, or 14%, to $343.9 million for the three months ended September 30, 2025, compared to $301.1 million for the three months ended September 30, 2024. The increase was driven primarily by growth in both our retailer and e-commerce channels. Net sales increased $22.3 million, or 9%, in our retailer channels and $20.6 million, or 39%, in our e-commerce channels. From a price and mix perspective, higher average item price and mix drove $62.2 million increase in net sales as compared to the three months ended September 30, 2024. This was partially offset by lower volume impacting sales by $19.4 million.
Gross profit
Gross profit increased $24.8 million, or 12%, to $238.9 million for the three months ended September 30, 2025, compared to $214.1 million for the three months ended September 30, 2024. Higher average item price and mix drove an increase of $38.6 million, offset by lower volume impacting gross profit by $13.8 million. Gross margin decreased approximately 165 basis points to 69% when compared to the three months ended September 30, 2024. The decrease in gross margin was primarily driven by tariffs, partially offset by pricing and mix.
Selling, general and administrative expenses
SG&A expenses were $231.1 million for the three months ended September 30, 2025, an increase of $45.0 million, or 24%, from $186.1 million for the three months ended September 30, 2024. SG&A expenses as a percentage of net sales increased to 67% for the three months ended September 30, 2025 from 62% for the three months ended September 30, 2024. The $45.0 million increase was primarily related to an increase in marketing, merchandising and distribution costs of $23.0 million, increased compensation and benefits expense of $10.4 million, increased depreciation and amortization of $7.9 million, and increased professional fees $2.8 million.
Other (expense) income, net
Other expense, net totaled $1.9 million for the three months ended September 30, 2025, as compared to other income, net of $3.8 million for the three months ended September 30, 2024. The year-over-year variance is primarily due to an increase in foreign currency exchange loss in the period primarily attributable to foreign currency rate fluctuation between the British pound and US dollar.
Interest expense, net
Interest expense, net was $9.2 million for the three months ended September 30, 2025, as compared to $3.8 million for the three months ended September 30, 2024. The year-over-year variance was primarily due to the Fifth Amendment which established the Term Facility and increased debt. See Note 7, "Debt," in the Notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details on our debt.
Income tax benefit (provision)
The income tax benefit was $7.0 million, or an effective rate of 175.1%, for the three months ended September 30, 2025, as compared to a provision of $8.9 million, or an effective rate of 31.9%, for the three months ended September 30, 2024. The change in the income tax provision was primarily driven by the tax effects of a decrease in income before taxes of $31.9 million, as well as an increase in discrete tax benefits of $1.3 million, primarily related to stock-based compensation, resulting in a higher benefit.
Comparison of the six months ended September 30, 2025 to the six months ended September 30, 2024
Net sales
Net sales increased $72.1 million, or 12%, to $697.7 million for the six months ended September 30, 2025, compared to $625.6 million for the six months ended September 30, 2024. The increase was driven primarily by growth in both our retailer and e-commerce channels. Net sales increased $42.7 million, or 8%, in our retailer channels and $29.5 million, or 28%, in our e-commerce channels. From a price and mix perspective, higher average item price and mix within retailer and e-commerce
orders drove $62.8 million of the increase in sales. A higher volume of units sold drove the remaining $9.3 million increase in net sales as compared to the six months ended September 30, 2024.
Gross profit
Gross profit increased $38.1 million, or 9%, to $483.4 million for the six months ended September 30, 2025, compared to $445.3 million for the six months ended September 30, 2024. Higher average item price and mix drove $31.4 million increase in gross profit, with the remaining increase of $6.6 million driven by higher unit volume. Gross margin decreased approximately 190 basis points to 69% when compared to the six months ended September 30, 2024. The decrease in gross margin was primarily driven by tariffs, partially offset by pricing and mix.
Selling, general and administrative expenses
SG&A expenses were $427.0 million for the six months ended September 30, 2025, an increase of $60.3 million, or 16%, from $366.7 million for the six months ended September 30, 2024. SG&A expenses as a percentage of net sales increased to 61% for the six months ended September 30, 2025 from 59% for the six months ended September 30, 2024. The $60.3 million increase was primarily related to an increase in marketing, merchandising and distribution costs of $30.3 million, increased depreciation and amortization of $12.1 million, increased professional fees of $8.5 million, and increased compensation and benefits expense of $8.3 million.
Other (expense) income, net
Other income, net totaled $3.2 million for the six months ended September 30, 2025, as compared to $4.0 million for the six months ended September 30, 2024. The year-over-year variance is primarily due to a decrease in foreign currency gains in the period attributable to currency rate fluctuation.
Interest expense, net
Interest expense, net was $11.8 million for the six months ended September 30, 2025, as compared to interest expense, net of $7.4 million for the six months ended September 30, 2024. The year-over-year variance was primarily due to the Fifth Amendment which established the Term Facility and increased debt. See Note 7, "Debt," in the Notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details on our debt.
Income tax benefit (provision)
The income tax provision was $10.8 million, or an effective rate of 23.0%, for the six months ended September 30, 2025, as compared to a provision of $8.6 million, or an effective rate of 11.4%, for the six months ended September 30, 2024. The change in the income tax provision was primarily driven by a decrease in discrete tax benefits of $10.1 million, primarily related to stock-based compensation, offset by the effects of a decrease in income before taxes of $28.1 million, resulting in a higher provision.
Financial condition, liquidity and capital resources
Overview
As of September 30, 2025, we had $194.4 million of cash and cash equivalents and $5.0 million of restricted cash. In addition, as of September 30, 2025, we had borrowing capacity of $243.3 million under our Amended Revolving Credit Facility.
Our primary cash needs are for working capital, fixturing, retail product displays, digital investments and debt service. We have also used cash for acquisitions. Cash needs typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities and expansion within or to additional retailer store locations. We expect to fund ongoing cash needs from existing cash and cash equivalents, cash generated from operations and, if necessary, draws on our Amended Revolving Credit Facility.
Our primary working capital requirements are for product and product-related costs, compensation and benefits, rent, distribution costs and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base, expansion to new retailers and the general seasonality of our business. As of September 30, 2025, we had working capital, excluding cash and cash equivalents and restricted cash, of $246.0 million, compared to $214.8 million as of March 31, 2025. Working capital, excluding cash and
cash equivalents, restricted cash and debt, was $268.5 million and $214.8 million as of September 30, 2025 and March 31, 2025, respectively.
We believe that our operating cash flow, existing cash and cash equivalents and available financing under the Amended Revolving Credit Facility will be adequate to meet our planned operating, investing and financing needs for the next twelve months. The unused balance of the Amended Revolving Credit Facility as of September 30, 2025 was $243.3 million. If necessary, we can borrow funds under our Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.
Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control, including those described elsewhere in Part II, Item 1A "Risk factors." In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be based on our ability to provide innovative products to our customers, manage production and our supply chain.
Cash flows
Six months ended September 30,
(in thousands) 2025 2024
Net cash provided by (used in):
Operating activities $ 50,648 $ 12,449
Investing activities (595,011) (2,502)
Financing activities 594,880 (21,976)
Cash provided by operating activities
For the six months ended September 30, 2025, net cash provided by operating activities was $50.6 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $134.9 million, partially offset by acquisition-related seller expenses of $47.1 million in connection with the rhode Acquisition, and a decrease in working capital of $37.2 million. The decrease in working capital was primarily driven by a $48.8 million increase in prepaid expense and other assets, a $19.2 million increase in inventory, partially offset by a $24.4 million increase in accounts payable and accrued expenses, a $3.5 million increase related to other liabilities, and a $3.0 million decrease in accounts receivable.
For the six months ended September 30, 2024, net cash provided by operating activities was $12.4 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $126.6 million, partially offset by an increase in working capital of $114.2 million. The increase in working capital was primarily driven by a $48.9 million increase in prepaid expense and other assets, a $45.1 million increase in inventory, a $21.2 million increase in accounts receivable, and a $4.2 million decrease related to other liabilities, partially offset by a $5.2 million increase in accounts payable and accrued expenses.
Cash used in investing activities
For the six months ended September 30, 2025, net cash used in investing activities was $595.0 million primarily related to the rhode Acquisition.
For the six months ended September 30, 2024, net cash used in investing activities was $2.5 million consisting of capital expenditures related to fixturing, equipment and software.
Cash provided by (used in) financing activities
For the six months ended September 30, 2025, net cash provided by financing activities was $594.9 million primarily related to Fifth Amendment which established the Term Facility and increased debt.
For the six months ended September 30, 2024, net cash used in financing activities was $22.0 million primarily driven by repurchases of our common stock of $17.1 million and repayment on the Amended Term Loan Facility of $5.4 million, partially offset by cash received from the exercise of stock options.
Description of indebtedness
Amended Credit Agreement
On April 30, 2021, we amended and restated our prior credit agreement (such amended and restated credit agreement, as further amended, supplemented or modified from time to time, the "Amended Credit Agreement") and refinanced all loans under the prior credit agreement. The Amended Credit Agreement has a five year term and consists of a $100.0 million revolving credit facility (the "Amended Revolving Credit Facility") and a $100.0 million term loan facility.
The Amended Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to pay dividends and distributions or repurchase capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets. The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios.
Second Amendment to Amended Credit Agreement
On August 28, 2023, we entered into the Second Amendment to Amended and Restated Credit Agreement (the "Second Amendment"). Pursuant to the Second Amendment, we borrowed incremental term loans in an aggregate original principal amount of $115.0 million under the Amended Credit Agreement (the "Incremental Term Loan"). We used the Incremental Term Loan, together with cash from our balance sheet and additional borrowings under our Amended Revolving Credit Facility, to consummate the Acquisition of Naturium (as defined in Note 4, "Acquisitions," in the Notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) and to pay related fees and expenses in connection with the Acquisition of Naturium and Second Amendment.
Third Amendment to Amended Credit Agreement
On August 26, 2024, we entered into the Third Amendment to Amended and Restated Credit Agreement (the "Third Amendment"). Pursuant to the Third Amendment, we increased our capacity to make restricted payments, provided that after giving effect to any such payment, we comply with a certain consolidated total net leverage ratio.
Fourth Amendment to Amended Credit Agreement
On March 3, 2025, we entered into the Fourth Amendment to Amended and Restated Credit Agreement and First Amendment to Pledge and Security Agreement (the "Fourth Amendment"). The Fourth Amendment, among other things, established a revolving credit facility in an aggregate principal amount of $500.0 million (the "Revolving Credit Facility"), refinanced the existing indebtedness under the Amended Credit Agreement and reduced the interest rate margin for loans. Additionally, certain baskets under the Amended Credit Agreement were increased as part of the Fourth Amendment. The proceeds of the Revolving Credit Facility are available to e.l.f. Cosmetics and certain of our other subsidiaries for working capital, capital expenditures and other general corporate purposes, including to finance acquisitions and investments permitted under the Amended Credit Agreement and other permitted distributions on account of our and our subsidiaries' equity interests. In addition, up to $35.0 million of the Revolving Credit Facility is available for issuing letters of credit. The maturity date of the Revolving Credit Facility is March 3, 2030.
The Fourth Amendment also replaced the fixed charge coverage ratio financial covenant with a minimum interest coverage ratio of at least 3.50 to 1.00, to be tested as of the last day of each fiscal quarter. The minimum interest coverage ratio is based on the ratio of trailing twelve month EBITDA for the four fiscal quarter period most recently ended to cash interest expense for such period.
The Fourth Amendment also amended the Pledge and Security Agreement, dated as of December 23, 2016, among us, certain of our subsidiaries, and the Agent pursuant to which certain covenants and thresholds set forth therein were amended, amongst other changes.
Fifth Amendment to Amended Credit Agreement
On August 5, 2025, we entered into the Fifth Amendment to Amended and Restated Credit Agreement (the "Fifth Amendment"). The Fifth Amendment, among other things, established a term loan facility in an aggregate original principal amount of $600.0 million (the "Term Facility"), made customary changes in connection with adding a term loan facility, increased the maximum permitted consolidated total net leverage ratio financial covenant, increased the interest rate margin for loans under our existing Revolving Credit Facility and increased the unused line fee under our existing Revolving Credit Facility. The proceeds of the Term Facility were made available to e.l.f. Cosmetics and certain of our other subsidiaries to pay a portion of the consideration for the acquisition of rhode. The maturity date of the Term Facility is March 3, 2030.
Loans under the Amended Credit Agreement will bear interest at a rate per annum equal to, at e.l.f. Cosmetics' election: SOFR (subject to a 0.00% floor) or an alternate base rate (subject to a 1.00% floor) as set forth in the Fifth Amendment, plus an interest rate margin, to be determined based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.25%, and (ii) in the case of alternate base rate loans, 0.50% to 1.25%.
Unused commitments under our existing Revolving Credit Facility are subject to a fee, to be determined based on consolidated total net leverage ratio levels, ranging from 0.15% to 0.25%.
The interest rate as of September 30, 2025 for the Term Facility was approximately 6.3%.
The interest rate as of September 30, 2025 for the Revolving Credit Facility was approximately 6.2%. The unused balance of the Revolving Credit Facility as of September 30, 2025 was $243.3 million.
Contractual obligations and commitments
There have been no material changes to our contractual obligations and commitments as included in the Annual Report.
Off-balance sheet arrangements
We are not party to any off-balance sheet arrangements.
Critical accounting policies and estimates
The MD&A is based upon our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with US GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances and evaluate these estimates on an on-going basis. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the critical accounting policies and estimates included in the Annual Report.
Recent accounting pronouncements
Recent accounting pronouncements are disclosed in Note 2, "Summary of Significant Accounting Policies," in the Notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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