e.l.f. Beauty Inc Earnings - Q4 2025 Analysis & Highlights
e.l.f. Beauty Inc. reported strong Q3 Fiscal 2026 results with significant net sales and adjusted EBITDA growth, driven by the acquisition of rhode. The company raised its fiscal 2026 outlook for both top and bottom lines, primarily due to rhode's outperformance. Discussions highlighted consistent market share gains for the e.l.f. Cosmetics brand, strategic international expansion for rhode and Naturium, and continued investment in innovation and disruptive marketing. Challenges included softer trends in the UK and Germany, and the impact of tariffs.
Key Financial Results
Net sales grew 38% in Q3 2026 compared to the prior year.
Adjusted EBITDA increased 79% in Q3 2026 versus last year.
Q3 marked the 28th consecutive quarter of net sales growth.
Gross margin for Q3 was 71%, a decrease of approximately 30 basis points year-over-year, but up 200 basis points sequentially from Q2.
The year-over-year decrease in gross margin was mainly due to tariffs, partially offset by pricing and mix.
Adjusted SG&A as a percentage of sales was 51% in Q3, down from 54% in Q3 last year.
Marketing and digital investment for the quarter was 21% of net sales, compared to 27% in Q3 last year.
Adjusted net income was $74 million, or $1.24 per diluted share, up from $43 million, or $0.74 per diluted share, a year ago.
Business Segment Results
The acquisition of rhode contributed $128 million, or approximately 36 percentage points, to Q3 net sales growth.
Organic sales, excluding rhode, were up approximately 2% year-over-year in Q3.
Net sales in the US grew 36% year-over-year, while international net sales grew 44% in Q3.
e.l.f. Cosmetics brand grew 8% in the US this quarter, two times the category.
e.l.f. SKIN consumption grew 16% in the US this quarter, also outperforming the category two times.
Naturium continues to drive strong growth.
rhode achieved the number one brand ranking in Sephora North America and a record-breaking launch with Sephora in the UK.
Capital Allocation
The company ended the quarter with $197 million in cash on hand, compared to $74 million a year ago.
Approximately $50 million of outstanding common stock was repurchased during the quarter.
$400 million remained available for repurchase under the previously authorized repurchase program at quarter end.
The company's liquidity position remained strong, with less than two times net debt to adjusted EBITDA, even after the acquisition of rhode.
Cash priorities for the year are expected to remain on investing behind growth initiatives and supporting strategic extensions.
Industry Trends and Dynamics
The beauty category is experiencing consumer engagement and momentum.
The color cosmetics category was up 4% in the last quarter.
The skincare category was up 8% in the last quarter.
e.l.f. Beauty has four of the 14 brands that have surpassed $200 million in annual retail sales out of nearly 1,800 cosmetics and skincare brands tracked by Nielsen.
Competitive Landscape
e.l.f. Cosmetics increased its market share by 130 basis points, the largest share gain among over 700 cosmetics brands tracked by Nielsen.
e.l.f. Cosmetics has more than doubled its market share over the last five years.
The e.l.f. brand remains the most productive cosmetics brand on a dollar-per-linear-foot basis with its largest retail customers globally.
rhode's launch in Sephora North America was 2.5 times bigger than any other brand's launch.
rhode's launch in Sephora UK was the largest in its history, outperforming the previous record holder by five times.
Macroeconomic Environment
Softer trends were observed in the UK and Germany, the largest international markets.
Weaker consumption and a highly promotional environment were noted in the UK.
The company is cycling its largest international launch to date with Rossmann, Germany.
Tariffs largely drove the year-over-year decrease in gross margin.
The tariff rate is currently at 45%, down from as high as 170% earlier in the fiscal year.
Growth Opportunities and Strategies
The company believes in democratizing access to the best of beauty through accessible price points and exceptional quality.
e.l.f. Cosmetics has a unique community-led approach to innovation.
e.l.f. brand held four of the top 10 new products in mass cosmetics in 2025, and six of the top 10 new products in 2024.
Significant whitespace exists in the lip and eye segments, where e.l.f. Cosmetics has 13% and 9% share, respectively, compared to 22% in face makeup.
New product launches include e.l.f.'s Glow Reviver Slipstick at $10 and e.l.f.'s Soft Glam Satin Concealer at $5.
The company is leaning into its disruptive marketing engine through brand-on-brand partnerships and campaigns.
Collaborations include Liquid Death for CORPSE PAINT and Lip Embalms, and H&M for fragrances.
e.l.f. will debut a commercial at The Big Game on Peacock.
e.l.f. is expanding its space within Ulta Beauty in the US and launching with DM in Germany in spring 2026.
rhode launched in retail with Sephora and is expanding to Australia and New Zealand with Mecca.
Naturium will expand its retail presence to Walmart for the first time this spring.
International markets currently drive approximately 20% of net sales, compared to over 70% for legacy peers, indicating significant international opportunity.
Financial Guidance and Outlook
The company is raising its fiscal 2026 outlook for both the top and bottom lines, primarily driven by rhode's outperformance.
For the full year, net sales growth is now expected to be approximately 22% to 23% year-over-year, up from 18% to 20% previously.
rhode is expected to contribute approximately $260 million to $265 million in net sales to fiscal 2026, up from $200 million previously.
On an annualized basis, the outlook assumes rhode will achieve net sales growth of approximately 70% year-over-year.
The guidance implies 31% to 33% net sales growth for the second half of the year.
On an organic basis, excluding rhode, net sales are expected to be up approximately 2% in the second half.
The company assumes approximately 6% global consumption growth, partially offset by a four percentage point headwind from pipeline due to cycling significant retail expansion from the previous year.
Adjusted EBITDA for the full year is now expected to be $323 million to $326 million, up from $302 million to $306 million previously.
The outlook implies adjusted EBITDA growth of 9% to 10% year-over-year, and adjusted EBITDA margins of approximately 20%.
For the second half, adjusted EBITDA margins are implied to be approximately 19%, down approximately 300 basis points versus last year.
Marketing spend is expected to be about 27% of net sales in the second half, up about 200 basis points relative to the 25% of net sales spent in the second half of last year.
Planned investments in non-marketing SG&A include space expansion and team building.
