e.l.f. Beauty's Q2 2026 Earnings Call: Contradictions Emerge on Pricing Strategy, Marketing Spend, and Rhode's International Growth Amid Tariff Uncertainty

Business Commentary:

* Revenue and Market Share Growth:

- e.l.f. Beauty reported net sales growth of 14% in Q2 fiscal '26, driven by a 7% increase in the e.l.f. brand's market share, contributing 140 basis points.
- The growth was fueled by strong consumer demand for e.l.f. products, particularly in the eye, lip, and face categories.

• Rhode Acquisition Impact:
• The acquisition of Rhode contributed $52 million to e.l.f. Beauty's Q2 net sales, approximately 17 percentage points.

• Rhode's successful debut with Sephora North America exceeded previous launch records by 2.5x, indicating strong consumer interest in the brand.

• Organic Sales and Consumption Trends:

• Excluding Rhode, e.l.f. Beauty's organic net sales were down approximately 3% in Q2 due to temporary shipment disruptions.

• This was primarily due to stopping shipments to retailers not reflecting the August 1 price increase, which has since been resolved.

• Tariff Impact and Financial Outlook:

• E.l.f. Beauty's gross margin was impacted by 165 basis points due to increased tariffs, primarily affecting production from China.
• The company anticipates full-year net sales growth of 18% to 20%, adjusted EBITDA between $302 million to $306 million, and adjusted EPS of $2.80 to $2.85, with continued investments in marketing and digital to support growth opportunities.
  

Contradiction Point 1

Pricing and Consumer Elasticity

It involves the company's strategy regarding pricing and consumer elasticity, which impacts revenue projections and consumer behavior.

Can you clarify the full-year revenue guidance and the Q3 revenue decline excluding Rhode's impact on the core e.l.f. business? How did you resolve pricing issues with retailers and did it alter the economics of the relationship? - Dara Mohsenian(Morgan Stanley)

2026Q2: Q2 shipments were below consumption primarily driven by the decision to stop shipments to retailers who were slower to execute price increases. - Mandy Fields(CFO)

Can you discuss the underlying revenue growth compared to last year and the impact of Sephora's expansion on the strong base business growth trends? - Dara Warren Mohsenian(Morgan Stanley, Research Division)

2026Q1: We're being conservative with our modeling, particularly given current consumer sentiment. While we expect elasticity, we're closely monitoring consumer response to the price increase. - Mandy Fields(CFO)

Contradiction Point 2

Marketing Spend Allocation

It involves the company's strategy regarding marketing spend allocation, which impacts brand visibility and growth.

Why the higher marketing spend in H2 despite flat YoY spending? How is marketing allocated across brands? - Anna Lizzul(BofA Securities)

2026Q2: We're investing in team and infrastructure, both domestically and internationally. - Mandy Fields(CFO)

What is the RTW business, how are materials sourced from financials, and how does this impact margins? - Mark R. Altschwager(Robert W. Baird & Co. Incorporated, Research Division)

2026Q1: This year, we'll be increasing our marketing investment to approximately $100 million. We'll continue to invest in our core e.l.f. brand and support the power of the Naturium brand. - Mandy J. Fields(CFO)

Contradiction Point 3

Rhode's International Growth Impact

It involves the company's expectations for Rhode's international growth, which impacts revenue projections and strategic direction.

How significant is Rhode's contribution to international growth, and how does its shift to wholesale affect gross margins? - Steve Powers(Deutsche Bank)

2026Q2: Rhode contributed to international growth, with gross margins expected to be accretive despite transitioning to wholesale. - Mandy Fields(CFO)

Does stronger current performance affect prior guidance, and how will margins perform in the second half, considering temporary costs and price increases? - Peter K. Grom(UBS Investment Bank, Research Division)

2026Q1: We believe that there's a strong opportunity for Rhode to expand internationally through the global reach of e.l.f. and its strong brand awareness. - Tarang P. Amin(CEO)

Contradiction Point 4

Impact of Tariffs on Inventory

It involves the expected timing and impact of tariffs on inventory, which can influence financial performance and operational planning.

How did you end the quarter, and what were the slowdown factors in U.S. and international markets? - Olivia Tong Cheang (Raymond James)

2026Q2: Tariffs will impact Q1 through Q3, especially in Q1. - Mandy Fields(CFO)

When will tariff impacts affect inventory, and are there new shelf-space gains for Naturium? - Susan Anderson (Canaccord Genuity)

2025Q4: Tariff impacts start in Q1 due to prior shipments. Pricing won't mitigate in Q1. - Mandy Fields(CFO)

Contradiction Point 5

Market Share and Consumer Behavior

It involves the expected impact of a price increase on market share, which directly affects company growth strategies and consumer behavior.

Has consumption changed after the August 1 price increase, and what is the current consumption compared to the $212 million before the Rhode deal? - Andrea Teixeira (JPMorgan Chase)

2026Q2: We expect this pricing move to support market share gains while preserving value. - Tarang Amin(CEO)

What is the impact of the August pricing increase, and does it apply to all brands? - Korinne Wolfmeyer (Piper Sandler)

2025Q4: We expect this pricing move to support market share gains while preserving value. - Tarang Amin(CEO)