Assessing E.l.f. Beauty's Resilience Amid Tariff Headwinds and Strategic Expansion

In the ever-evolving beauty sector, E.l.f. Beauty (ELF) has long been a disruptor, leveraging digital-first strategies and affordable luxury to capture market share. However, 2025 has tested the company's resilience as U.S. import tariffs and the integration of its high-profile Rhode acquisition collide with broader economic headwinds. This analysis evaluates E.l.f. Beauty's valuation and growth prospects, dissecting how tariff-driven margin pressures and brand integration efforts are reshaping its trajectory.

Tariff Pressures: A Double-Edged Sword

The U.S. government's 2025 tariff hikes on Chinese imports-accounting for 75% of E.l.f. Beauty's global production-have directly eroded profitability. According to a report by , the company's gross margin fell by 165 basis points to 69% in Q3 2025, with annualized tariff costs projected to exceed $50 million for fiscal 2026. These tariffs, which now impose steep rates of up to 145% on certain beauty products, have forced E.l.f. to raise prices and streamline supply chains. While the company has mitigated some costs through diversification and pricing adjustments, the margin compression remains a critical risk.

The impact is not isolated to E.l.f. Beauty. A BCG analysis notes that the beauty industry's weighted tariff rate surged to 30% in 2025 from 2.4% in 2024, disproportionately affecting smaller brands with limited supplier flexibility. E.l.f. Beauty's ability to absorb these costs-through its scale and digital efficiency-has cushioned the blow, but the long-term sustainability of this strategy remains uncertain.

Rhode Integration: A Growth Engine Amid Uncertainty

E.l.f. Beauty's acquisition of Rhode, the celebrity-backed brand co-founded by Hailey Bieber, has emerged as a key growth driver. In Q2 2026, Rhode contributed $52 million in net sales, with management projecting $200 million in annualized revenue for fiscal 2026. The brand's launch at Sephora North America, described as the retailer's "biggest-ever launch," underscores its potential to diversify E.l.f.'s product portfolio and attract a younger demographic according to the company's earnings call.

However, the Rhode integration has not been without hiccups. Despite the brand's strong performance, E.l.f. Beauty's Q2 revenue of $343.9 million fell short of the $367.95 million consensus estimate, triggering a 20% stock price plunge. Analysts attribute this to broader consumer spending caution and the lingering effects of tariff-driven margin pressures. While Rhode's 40% year-over-year growth is impressive, it must offset the core brand's slower expansion-projected at 3–4% for fiscal 2026.

Valuation Metrics: A High-Multiple Dilemma

E.l.f. Beauty's valuation remains a contentious topic. As of late 2025, the stock trades at a P/E ratio of 72.29 and 30 times next-twelve-month EPS estimates according to UBS analyst reports. This premium reflects investor optimism about the Rhode acquisition and E.l.f.'s digital prowess but contrasts sharply with the company's recent earnings misses. UBS, for instance, cut its price target from $150 to $105, citing "weaker-than-expected guidance" and margin risks according to the analyst's report.

Comparative analysis with peers reveals a mixed picture. While E.l.f. Beauty's 18–20% sales growth forecast for fiscal 2026 outpaces many rivals, its EV/EBITDA multiple remains elevated relative to industry benchmarks. A July 2025 Capstone Partners report highlights that mid-sized beauty brands are increasingly prioritizing manufacturing efficiency and supply chain resilience, factors that could pressure valuations if margins continue to contract.

Strategic Expansion: A Path Forward

To navigate these challenges, E.l.f. Beauty is doubling down on international expansion, with planned launches in Poland, the Gulf Cooperation Council countries, and Germany in spring 2026. These moves aim to diversify revenue streams and reduce reliance on U.S. markets, where tariff impacts are most acute. Additionally, the company has temporarily halted shipments to retailers slow to implement price increases, signaling a firm stance on pricing integrity.

The Rhode brand's role in this strategy is pivotal. By leveraging celebrity influence and Sephora's retail network, E.l.f. Beauty aims to bridge the gap between mass-market affordability and premium aesthetics. However, the success of this dual-brand model hinges on maintaining gross margins and executing cost-saving initiatives effectively.

Conclusion: Balancing Growth and Margin Pressures

E.l.f. Beauty's 2025 journey reflects the broader challenges facing the beauty industry: navigating geopolitical trade policies while scaling high-growth ventures. The Rhode acquisition offers a compelling narrative, but its ability to offset tariff-driven margin erosion and revenue shortfalls will determine the company's long-term valuation. Investors must weigh the potential of strategic expansion against the risks of overvaluation and margin compression. For now, E.l.f. Beauty remains a high-conviction play, but one that demands close scrutiny of its execution in the months ahead.