e.l.f. Beauty Inc. Stays on Track for Modest Sales Growth in 2018

Cosmetics specialist e.l.f. Beauty (NYSE: ELF) recently announced first-quarter earnings results that kept the company right on track to meet its modest 2018 financial targets. The latest operating trends didn't show a rebound in the makeup industry, but instead suggested that the weak sales environment will continue for at least the next few quarters.

Here's a look at how the latest headline numbers stacked up against the prior-year period:

What happened this quarter?

Sales growth inched higher after falling sharply in the holiday quarter. The company notched a few notable retailing wins, too, including an expanded sales presence. Reported earnings, meanwhile, were hurt by a few temporary challenges. But e.l.f. Beauty's overall profitability held up well.

Highlights of the quarter include:

• Revenue improved by 9% to mark a slight acceleration over last quarter's 7% boost. The retailer benefited from an increased sales presence, especially as its products rolled out to Ulta Beauty locations across the country.
• Gross profit margin fell to 61% of sales from 63%, which management blamed on foreign exchange rate swings and freight costs. These shifts overwhelmed the positive impact from higher-margin product sales that were driven by innovative cosmetic launches.
• Expenses dipped slightly but remained elevated at 48% of sales.
• Reported profits dove, mainly thanks to a $5 million noncash charge that management said would not repeat in future periods. Adjusted net income, on the other hand, held steady at $5.5 million.

What management had to say

Executives were encouraged by the results. "We are pleased with our start to 2018," CEO Tarang Amin said in a press release. "Highlights for the quarter," Amin continued, "included our full-chain rollout at Ulta Beauty, our most successful Beautyscape influencer program and product collaborations to date, and expanding our operations advantage to our first U.S. manufacturing partner."

Management credited the new shelf space that the company has acquired for driving sales higher. Product launches, meanwhile, helped protect profitability, they explained.

Looking forward

Amin and his executive team affirmed a full-year outlook that reflects challenging conditions in the makeup industry. Sales are predicted to grow by between 6% and 8% to mark a sharp slowdown from the 18% gain last year and the 20% increase that e.l.f. Beauty enjoyed in 2016. Adjusted net income will dip slightly, they forecast, as adjusted earnings per share fall by between 5% and 8%.

Beyond that short-term result, the cosmetic specialist's operating trends will depend on its continued success at rapidly turning out innovative, on-trend products. Management is also focused on manufacturing and delivering those cosmetic items efficiently to its widest sales base yet.

Investors can likely expect volatility along the way as e.l.f. Beauty adjusts to its larger footprint. But progress on this score should put the company in a good market-share position that it can capitalize on once the industry returns to a healthier growth pace.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends e.l.f. Beauty, Inc. and Ulta Beauty. The Motley Fool has a disclosure policy.