e.l.f. Beauty’s Tariff Refund Reinvestment and Pricing Strategy Signals Don’t Match in 2027 Q1 Earnings Call

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $36% year-over-year growth; organic net sales excluding Rode aligned with high single-digit decline outlook; Rode contributed ~$160M in net sales
• EPS: $1.75 per diluted share, up from $0.89 year ago; tariff refunds added ~$0.68 per share benefit
• Gross Margin: 83%, up approximately 1,400 basis points YOY; excluding $50M tariff refund benefit, still up ~350 basis points

Guidance:

• Net sales growth for full year FY27 raised to 18-20% from 12-14% previously.
• Adjusted EBITDA expected $401-$407M, up from $379-$385M previously.
• Adjusted EPS expected $3.50-$3.55 per diluted share, up from $3.27-$3.32 previously.
• Q2 net sales growth expected mid-30s.
• Organic net sales growth for FY27 expected 6-7%.
• Marketing spend as % of net sales expected at high end of 23-25% range for full year.

Business Commentary:

Sales and Revenue Growth:

• e.l.f. Beauty reported a 36% increase in net sales for Q1, marking the company's 30th consecutive quarter of net sales growth.
• The growth was driven by strong performance across its diversified portfolio of brands, including e.l.f. Cosmetics, e.l.f. Skin, Notorium, and Rode.

Pricing Strategy and Consumer Response:

• The company conducted a price discovery test, identifying that maintaining lower prices on about 10% of SKUs drove significant unit momentum, while the remaining SKUs returned to their pre-test prices.
• This strategy was implemented to strengthen the value proposition, especially in a time when consumers are concerned about the economy, and to drive unit sales growth.

International Expansion and Market Penetration:

• e.l.f. Beauty's international net sales grew by 61% in Q1, with plans to expand further in key markets like the U.K., Canada, Germany, and Brazil.
• The expansion is supported by a strong marketing engine and partnerships with major retailers like Boots and Sephora, aiming to capitalize on global demand.

RODE Brand Performance and Future Expansion:

• Rode contributed approximately $160 million in net sales in Q1, with exceptional growth driven by its curated product assortment and consumer engagement model.
• The brand is set to expand into Europe with Sephora, covering 19 countries, leveraging its strong consumer base and cultural relevance.

Tariff Refunds and Reinvestment:

• The company received $50 million in IEPA tariff refunds, which are planned to be reinvested into the business through price adjustments and increased marketing investments.
• This reinvestment aims to support brand growth and competitive positioning, particularly for e.l.f. Cosmetics, Notorium, and Rode.

Sentiment Analysis:

Overall Tone: Positive

• "I'm proud of the e.l.f. Beauty team for achieving another quarter of industry-leading results." "We're raising our fiscal 27 outlook to 18-20% net sales growth as compared to 12-14% previously." "I feel great about the work the team has done on our price discovery." "We are taking targeted actions to strengthen the ELF brand while continuing to invest behind all of our brands. We remain confident in the strength of our fundamentals."

Q&A:

• Question from Olivia Tong (Raymond James): With the price adjustments implemented, what have you seen in terms of trial/consumer response, and what are the offsets to minimize margin impact? Also, on RODE, what capabilities has it brought to e.l.f., and what is the right pace for geographic expansion?
  Response: Price discovery test showed 90% of SKUs were appropriately priced; 10% maintained lower prices to drive unit momentum, with expected gross profit dollar growth over time. RODE brought significant growth and consumer expansion; e.l.f. brings distribution/marketing expertise. Geographic expansion is proceeding with launches in Europe, leveraging strong consumer demand and Sephora partnerships.

• Question from Anna Lizel (Bank of America): Given the momentum, why was the guidance raise only this amount? Also, where will e.l.f. Hair be shelved and what is the expansion potential?
  Response: Guidance raise reflects strong Q1 results and core business momentum, not tariff refunds which are reinvested. e.l.f. Hair is shelved in the hair care aisle, launched exclusively with Target initially, with potential for future expansion similar to e.l.f. Skin.

• Question from Susan Anderson (Canaccord Genuity): What is ELF brand performance in international markets like UK and Germany? Also, on price investments, why raise back prices on the rest of SKUs?
  Response: Significant improvement seen in UK and Germany after marketing investments and retailer expansions; major positive trends. On pricing, 90% of SKUs were appropriately priced; only the 10% showing significant unit movement had prices maintained lower to justify investment.

• Question from Christian Rios (Bernstein): What is the channel strategy for haircare and roadmap for expansion? Also, should reinvestments from tariff refunds be considered one-time or a headwind next year?
  Response: Haircare is in hair care aisle, exclusive with Target initially, with future expansion planned. Tariff reinvestment is a one-time $50M inflow matched by spending on marketing and pricing; no headwind next year, with marketing ROI expected to drive growth.

• Question from Sydney Wagner (Jefferies): What characteristics did the 10% of SKUs have in common from price discovery? How will international strategy balance new geographies vs. core markets?
  Response: The 10% of SKUs varied but showed disproportionate unit movement at lower prices; strategy is to maintain that for growth. Internationally, focus is on deepening core markets (UK, Germany) with marketing while continuing to seed new markets.

• Question from Andrea Texera (JP Morgan): How is ELF performing against category, and how will marketing reinvestment affect operating leverage?
  Response: ELF gained market share and performed well against prestige; fall innovation is ahead of expectations. Marketing reinvestment is temporary, with marketing spend still within historical 23-25% of sales range, focusing on brand growth.

• Question from Steve Powers (Deutsche Bank): What is the timing of incremental spending over the next three quarters? What portion yields a return this year vs. long-term? Any updated cost inflation outlook?
  Response: Timing not broken down by quarter; marketing spend may exceed 23-25% range in Q2-Q4 to hit target. Marketing impact is both short-term (e.g., awareness) and long-term. Higher freight costs are included in outlook, but no other significant input cost inflation.

• Question from Peter Grom (UBS): What drove the stronger organic sales outlook? Is it optimism around RODE going organic or across the base business? Can you quantify haircare expectations?
  Response: Stronger organic outlook driven by improved ELF trends and momentum across all brands, including RODE. Haircare launch is early-stage but included in the strong organic growth forecast of 10-12% for the balance of the year.

• Question from Filippo Filorni (Citi): What is the pipeline for RODE in Sephora Europe and any expectation of performance relative to the U.S.? Also, any elasticity expectation as prices are raised back?
  Response: RODE pipeline for Sephora Europe is largely in Q2, with strong confidence due to past outperformance and pent-up demand. Price elasticity: items returning to original prices did not show enough unit improvement to justify lower investment; plan balances value and unit growth.

Contradiction Point 1

Characterization of Price Adjustment Test Results and Gross Profit Impact

It involves changes in the financial rationale for permanent price reductions, affecting expectations for future gross profit.

Olivia Tong (Raymond James) - Olivia Tong (Raymond James)

2027Q1: The permanent lower pricing on the 10% is expected to grow gross profit dollars over time. - Tarang Amin(CEO)

How are price adjustments, consumer response, and new shelf space assumptions impacting guidance and margin strategies? - Susan Anderson (Canaccord Genuity)

2027Q1: The decision to keep the 10% at lower prices was based on a thoughtful analysis of expected sales and gross profit. - Mandy Fields(CFO)

Contradiction Point 2

Description of Tariff Refund Reinvestment as a One-Time Item

It involves contradiction on whether the reinvestment is a one-time investment or part of ongoing spending, impacting marketing spend forecasts.

Christian Rios (Bernstein) - Christian Rios (Bernstein)

2027Q1: The reinvestment (primarily in marketing and some pricing) over Q2-Q4 is a one-time investment. - Mandy Fields(CFO)

Are the tariff-related reinvestments a one-time expense or an ongoing headwind next year? - Andrea Texera (JP Morgan)

2027Q1: Marketing spend as a percentage of net sales is expected to be at the high end of the 23%-25% range for the year, potentially exceeding it in Q2-Q4 to make up for Q1 underspend. - Mandy Fields(CFO)

Contradiction Point 3

Tariff Refund Financial Treatment

It involves contradiction on whether tariff refunds are included in the financial outlook, affecting the accuracy of financial guidance.

Anna Lizel (Bank of America) - Anna Lizel (Bank of America)

2027Q1: The $50M tariff refund in Q1 will be reinvested over Q2-Q4, netting to zero for the year. - Mandy Fields(CFO)

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2026Q4: Potential tariff refunds (~$58.5M) are not included in the outlook but may be used to invest in value and unit growth. - Mandy Fields(CFO)

Contradiction Point 4

Pricing Strategy and Unit Growth Expectations

It involves contradiction on the primary driver of pricing action success, affecting the strategy for value and unit growth.

Olivia Tong (Raymond James) - Olivia Tong (Raymond James)

2027Q1: A broad price discovery test showed that 90% of SKUs were priced appropriately, while about 10% could see significant unit momentum at lower prices. - Tarang Amin(CEO)

How have price adjustments impacted consumer trial and response? - Dara Mohsenian (Morgan Stanley)

2026Q4: The recent value share pressure is attributed to slower-than-expected spring innovation... The path forward focuses on value, innovation... - Tarang Amin(CEO)

Contradiction Point 5

International Business Expansion Strategy and Pace

It involves contradiction on the speed and focus of international market expansion, affecting the company's global strategy.

Sydney Wagner (Jefferies) - Sydney Wagner (Jefferies)

2027Q1: The company now has a better balance. It will continue to seed new markets but will double down on core markets (UK, Germany) with full marketing support... - Tarang Amin(CEO)

What characteristics did the 10% of SKUs share that justified lower prices for unit growth, how does this strategy translate internationally, and what is the cadence for new geographies for the Core ELF brand? - Olivia Tong (Raymond James)

2026Q3: Rhode’s expansion will maintain its high-quality launch standard... The brand is being globalized methodically (next launch in Australia/New Zealand with Mecca). There is huge pent-up demand internationally (74% of social followers are outside the U.S. vs. only 20% of DTC sales). - Tarang Amin(CEO)