E.l.f. shares soar as cosmetics retailer raises guidance after posting 40% sales gain

• E.l.f. Beauty grew sales by 40% in its second fiscal quarter, leading it to raise its full year earnings and sales guidance.
• "Not only are we the No. 1 brand amongst Gen Z by a pretty wide margin, but we're also the most purchased brand amongst Gen Alpha and millennials,” CEO Tarang Amin told CNBC.
• Amin said the company is well-positioned to weather increased tariffs that could be imposed under President-elect Donald Trump.

E.l.f. Beauty raised its full-year guidance on Wednesday after posting a 40% growth in sales. 

Shares of the company rose nearly 10% in after-hours trading.

The cosmetics retailer's earnings came in well ahead of expectations on the top and bottom lines and it now expects sales to be between $1.32 billion and $1.34 billion during fiscal 2025, ahead of the $1.30 billion analysts had expected, according to LSEG. 

Here's how E.l.f. did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: 77 cents adjusted vs. 43 cents expected
• Revenue: $301 million vs. $286 million expected

The company's reported net income for the three-month period that ended Sept. 30 was $19 million, or 33 cents per share, compared with $33 million, or 58 cents per share, a year earlier. Excluding one-time items, E.l.f. saw earnings of $45 million, or 77 cents per share.  

Sales rose to $301 million, up about 40% from $216 million a year earlier. 

E.l.f. raised its full-year revenue guidance from a previous range of $1.28 billion to $1.3 billion and also raised its adjusted earnings guidance. The retailer is expecting adjusted earnings to be between $3.47 to $3.53 per share, up from a prior outlook of between $3.36 and $3.41 per share. Analysts had been looking for earnings guidance of $3.51, according to LSEG. 

The cosmetics company has been on a tear over the past couple of years thanks to its viral marketing and its prowess in winning over young shoppers with its value versions of prestige favorites. 

"We're seeing multi-generational appeal on E.l.f. Not only are we the No. 1 brand amongst Gen Z by a pretty wide margin, but we're also the most purchased brand amongst Gen Alpha and millennials," CEO Tarang Amin said in an interview with CNBC. "We're picking up consumers in pretty much every age and income cohort, which is great to see, and I think just talks to the strength of our strategy and the quality of our products." 

Amin said that success has led both Target and Walgreens to plan to expand the shelf space they allot for the retailer starting in the spring. 

During the quarter, E.l.f.'s selling, general and administrative costs rose by $74 million to $186.1 million, or 62% of net sales, but it still managed to post a 71% gross margin, an increase of 0.4 percentage points from the year-ago quarter. 

Amin attributed the increase in margin to favorable foreign exchange rates, previously enacted price increases internationally and its overall value proposition. 

"Our ability to engineer prestige quality at these extraordinary prices has been the real driver, but most of our margin progress over the years has been through our innovation mix," Amin said. "As we introduce a new one of our holy grails, it gives us the opportunity to inch up margin a little bit while still offering an incredible value." 

The company has also been building out its international sales, which now make up about 21% of overall revenue. 

Amin said its exposure to markets outside of the U.S. will help soften the blow from any tariff hikes that could come under President-elect Donald Trump.