e.l.f. Beauty Q4 2020: Eyes, Lips, Face, $$$

e.l.f. Beauty, which has been blowing up Tik Tok with its "Eyes. Lips. Face. Safe.” campaign,  has announced 2020 full-year net sales (period ending March 31, 2020) of $283 million, a gain of 6%, year-over-year. On a GAAP basis, net income was $17.9 million. The company argues that amid a troubled makeup market, the brand has gained market share in U.S. color cosmetics.

The company noted "a significant decline" in retail sales associated with the COVID-19 pandemic and is forecasting sales declines to continue until normal shopping patterns resume.

An official announcement noted, "The company has an extremely talented team and plans to protect as many jobs as possible during this time."

The company’s supply chain in China was largely unimpacted during the COVID-19 outbreak, according to e.l.f. The supply chain is experiencing normal run rates at the moment. Its U.S. distribution centers are also fully operational.

To preserve cash, the company will cut back expenses, marketing and digital investments, merchandising, operations, and capital expenditures. It is also "tightly managing receivables and inventory." The company has accessed $20 million of its $50 million revolving credit facility, giving it approximately $65 million in cash on hand.

2021 Outlook

The company "expects sales trends and the economy overall to remain volatile for the next

“We believe the steps we’ve taken to fortify our balance sheet and reduce expenses will help us navigate these unprecedented times,” said Mandy Fields, CFO. “We remain focused on executing our five strategic imperatives and advancing our strategic extensions, which gives me optimism in the long-term potential of our company.”

2020 Decoded

Growth in 2020 was driven by gains in e-commerce and retail partner channels, though somewhat offset by the closing of all 22 e.l.f. retail stores in February 2019. Excluding the contribution from e.l.f. retail stores, net sales increased 11% compared to fiscal 2019.

Gross margin increased to 64% in 2020 from 61% in 2019, driven in part by price increases.

At the same time, 2020 selling, general and administrative expenses amounted to $157.2 million, or 56% of net sales, compared to $137.7 million, or 51% of net sales in fiscal 2019. The increase was primarily due to investments in marketing and digital expenses, bonus accrual, investment in merchandising programs, and increased depreciation expenses driven by customer fixture programs.

Adjusted EBITDA slightly increased to $62.6 million from $62.4 million in fiscal 2019. Adjusted net income was $32.2 million, down slightly year-over-year.

Q4

For the three months ended March 31, 2020, net sales increased 13%, or $8.6 million, to $74.7 million, compared to $66.1 million in 2019. Gross margin increased to 64% from 61% when compared to the three months ended March 31, 2019.

SG&A was $47.0 million, or 63% of net sales, compared to $37.3 million, or 56% of net sales in the three months ended March 31, 2019. The increase was primarily due to investments in marketing and digital expenses and merchandising investments.

On a GAAP basis, net loss was $0.3 million, compared to net loss of $17.9 million in the three months ended March 31, 2019.

Adjusted EBITDA decreased 3% to $11.7 million from $12.0 million in the three months ended March 31, 2019.

Adjusted net income increased to $5.3 million, compared to adjusted net income of $3.2 million in the three months ended March 31, 2019.

As of March 31, 2020, the company had $46.2 million in cash and cash equivalents,  compared to $53.9 million as of March 31, 2019. The decrease was primarily due to funding the $25.9 million-dollar acquisition of W3LL People and $7.9 million dollars in share repurchases.

Tarang Amin, e.l.f. Beauty’s chairman and CEO, said:

Fiscal 2020 was a terrific year for e.l.f. Beauty. We saw four quarters of net sales growth, culminating in a 16% increase in the fourth quarter versus prior year. We also expanded gross margin 300-basis points, compared to the prior year. Of the top five color cosmetics brands in the U.S., e.l.f. Cosmetics grew the most market share in fiscal 2020 with 4.8% of the market, up 50 basis points, according to Nielsen.

Given our fiscal 2020 results and execution of our five strategic imperatives, we believe we are well positioned relative to the category to navigate the challenges posed by COVID-19. Our mission to make the best of beauty accessible to every eye, lip and face is more important than ever. While the current environment is challenging, we believe our talented team, digital strength and core value proposition will enable us to continue to gain market share.

Our focus will always be on our employees and community and I’m proud of our efforts to get through this together.