Why e.l.f. expects thinner margins after raising its profit target
Strong sales lift the annual outlook, while tariff-refund reinvestment and delayed marketing spending reshape the next two quarters. Rhode has also earned its first acquisition payout.
e.l.f. Beauty is raising its annual sales and profit forecasts after a 51% jump in quarterly revenue. Yet the company expects a much smaller share of sales to become adjusted profit in the second half of its fiscal year.
The explanation is largely in its spending plans. e.l.f. intends to reinvest roughly $52 million of tariff refunds in lower prices and marketing, while some marketing spending planned for the latest quarter has moved into the next two quarters.
That creates an important test for the beauty group: can stronger sales keep building as more of the planned investment reaches its income statement?
Our e.l.f. Beauty company profile follows its results, forecasts, borrowing and completed Rhode acquisition.
A higher target, with spending still ahead
For fiscal 2027, which ends in March, e.l.f. now forecasts adjusted earnings of $3.82 to $3.86 a share, up from $3.50 to $3.55 in August. The annual sales range rises to $2.003 billion to $2.029 billion from $1.938 billion to $1.968 billion.
Research by Ticker Byline shows that the midpoint of the adjusted earnings forecast is about 9% higher than in August, with the same forecast share count and tax-rate range.
The company also raised its annual adjusted EBITDA target to $421 million to $427 million from $401 million to $407 million. This measure of profit adds back interest, taxes, depreciation, amortization and items including stock compensation and changes in the estimated Rhode earnout.
Management says the outlook assumes the tariff refunds are fully reinvested, leaving a neutral effect on full-year adjusted EBITDA. It still expects annual gross margin excluding refunds to be approximately flat with the prior year.
The quarter benefited from growth and timing
Revenue reached $520.8 million in the quarter ended September 30. The company attributed about 16 percentage points of the 51% growth to Rhode sales before the acquisition's August anniversary. Its approximately 35% organic growth includes Rhode after that anniversary, along with the other brands.
Rhode's launch in Sephora Europe also brought shipments to stock the new retail locations.
Quarterly gross margin increased by about 1.6 percentage points to 71%. Only about 0.3 points came from incremental tariff refunds; lower ongoing tariffs and a favorable product mix provided the other benefits, partly offset by price reductions.
Adjusted EBITDA rose to $123.4 million from $66.2 million. Marketing and digital investment were 21% of sales, below management's plan because of the timing shift. With that spending moving later, e.l.f. expects a low-teens adjusted EBITDA margin in the second half, compared with roughly 29% in the first half.
Rhode's success brings a real payment
The brand's performance has also increased the expected cost of the acquisition earnout. e.l.f. recorded a $17.7 million expense in the latest quarter to raise the estimated value of that obligation. It excludes this noncash remeasurement from adjusted earnings.
A payment followed: on October 30, e.l.f. paid $30 million after Rhode met its first earnout milestone. The acquisition closed in August 2025; the payment is a subsequent cost under that agreement.
e.l.f. ended September with $350.8 million in cash and $826.7 million in borrowing principal. Management expects second-half sales growth of 7% to 10%, with growth stronger in the December quarter than in the March quarter.