e.l.f. Beauty's Q3 Net Income Plunges 84% Amid Rhode Acquisition Costs

TL;DR

**ELF's net income got crushed by the rhode acquisition, signaling a risky bet on future growth that's costing them big now.**

AI Summary

e.l.f. Beauty, Inc. reported a significant decline in net income for the three months ended September 30, 2025, falling to $2.996 million from $19.020 million in the prior year, a decrease of 84.2%. For the six months ended September 30, 2025, net income also dropped to $36.307 million from $66.575 million, a 45.5% reduction. Despite this, net sales increased by 14.2% to $343.936 million for the quarter and by 11.5% to $697.675 million for the six-month period, driven by the acquisition of rhode. The company's operating income for the quarter decreased substantially to $7.716 million from $27.918 million, primarily due to a 24.2% increase in selling, general and administrative expenses to $231.142 million. A major strategic change was the acquisition of rhode, which significantly impacted the balance sheet, increasing intangible assets by $367.678 million and goodwill by $511.248 million from March 31, 2025. Long-term debt also surged to $831.551 million from $256.676 million, largely financing the rhode acquisition. Key risks include intense competition, potential failure of new product introductions, and supply chain disruptions, especially given significant operations in China.

Why It Matters

This filing reveals e.l.f. Beauty's aggressive growth strategy through acquisition, specifically rhode, which has significantly increased its debt load and impacted short-term profitability. While sales are up, the sharp decline in net income and operating income, coupled with a substantial increase in SG&A, signals potential integration challenges or higher operational costs post-acquisition. Investors should scrutinize whether the long-term strategic benefits of the rhode acquisition will outweigh the immediate financial strain and increased leverage. Competitors like Ulta Beauty and Sephora will be watching to see if e.l.f. can successfully integrate rhode and maintain its value proposition in a highly competitive beauty market, affecting market share and pricing dynamics.

Risk Assessment

Risk Level: high — The risk level is high due to the significant decline in net income by 84.2% for the quarter and 45.5% for the six months, alongside a massive increase in long-term debt from $256.676 million to $831.551 million, primarily for the rhode acquisition. This substantial leverage and immediate profitability hit, coupled with increased SG&A expenses of $231.142 million, indicate considerable financial strain and integration risks.

Analyst Insight

Investors should exercise caution and closely monitor e.l.f. Beauty's next few quarters for signs of successful integration of rhode and a return to profitability. Consider holding off on new investments until there's clearer evidence that the acquisition's benefits are materializing and debt is being managed effectively.

Financial Highlights

debt To Equity

1.04

revenue

$343,936,000

operating Margin

2.24%

total Assets

$2,318,782,000

total Debt

$854,051,000

net Income

$2,996,000

eps

$0.05

gross Margin

69.45%

cash Position

$194,403,000

revenue Growth

+14.2%

Revenue Breakdown

Key Numbers

• $2.996M — Net income (Q3 2025) (Down 84.2% from $19.020M in Q3 2024)
• $36.307M — Net income (YTD Q3 2025) (Down 45.5% from $66.575M in YTD Q3 2024)
• $343.936M — Net sales (Q3 2025) (Up 14.2% from $301.075M in Q3 2024)
• $697.675M — Net sales (YTD Q3 2025) (Up 11.5% from $625.552M in YTD Q3 2024)
• $7.716M — Operating income (Q3 2025) (Down from $27.918M in Q3 2024)
• $231.142M — Selling, general and administrative expenses (Q3 2025) (Up 24.2% from $186.141M in Q3 2024)
• $831.551M — Long-term debt (Sept 30, 2025) (Increased from $256.676M as of March 31, 2025, largely due to rhode acquisition)
• $575.376M — Intangible assets, net (Sept 30, 2025) (Increased from $207.698M as of March 31, 2025, due to rhode acquisition)
• $851.830M — Goodwill (Sept 30, 2025) (Increased from $340.582M as of March 31, 2025, due to rhode acquisition)
• $580.603M — Cash used in acquisition, net of cash acquired (YTD Q3 2025) (Primary driver of cash used in investing activities)

Key Players & Entities

• e.l.f. Beauty, Inc. (company) — registrant
• rhode (company) — acquired brand
• Target (company) — retail customer
• Walmart (company) — retail customer
• Ulta Beauty (company) — retail customer
• Amazon (company) — retail customer
• SEC (regulator) — filing oversight
• New York Stock Exchange (regulator) — stock exchange

FAQ

Risk Factors

• Integration of Acquired Businesses [high — operational]: The acquisition of rhode significantly increased intangible assets by $367.678 million and goodwill by $511.248 million. Successful integration is critical to realizing the value of this acquisition and avoiding potential impairment charges.
• Increased Leverage [high — financial]: Long-term debt surged to $831.551 million from $256.676 million as of March 31, 2025, primarily to finance the rhode acquisition. This increased leverage heightens financial risk and sensitivity to interest rate fluctuations.
• Intense Competition [high — market]: The beauty industry is highly competitive, with numerous established and emerging brands. e.l.f. Beauty faces constant pressure to innovate and maintain market share against competitors.
• Supply Chain Disruptions [medium — operational]: Significant operations in China expose the company to potential supply chain disruptions due to geopolitical factors, trade policies, or other unforeseen events.
• New Product Introduction Failure [medium — market]: The company's success is partly dependent on the introduction of new products. Failure to meet consumer demand or market trends for new products can negatively impact sales and profitability.

Industry Context

The beauty industry remains highly competitive, characterized by rapid product innovation and evolving consumer preferences. While e.l.f. Beauty has demonstrated growth, particularly through strategic acquisitions like rhode, it operates in a dynamic market where brand loyalty can be fickle and new entrants are common. The focus on value and efficacy continues to be a key differentiator.

Regulatory Implications

e.l.f. Beauty operates under various consumer protection regulations related to product safety, labeling, and advertising. Compliance with these regulations, particularly in international markets, is crucial. The company's significant international presence, especially in China, also exposes it to evolving trade policies and geopolitical risks.

What Investors Should Do

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Key Dates

• 2025-09-30: End of Q3 2025 — Reported significant net income decline despite sales growth driven by rhode acquisition; substantial increase in debt and intangible assets.
• 2025-03-31: End of Fiscal Year 2025 — Represents the balance sheet prior to the major impact of the rhode acquisition on debt and goodwill.
• 2024-09-30: End of Q3 2024 — Prior year comparable period showing higher net income and operating income, before the full impact of the rhode acquisition.

Glossary

Goodwill

An intangible asset that arises when one company acquires another for a price greater than the fair market value of its assets and liabilities. (Increased significantly by $511.248 million due to the rhode acquisition, impacting the balance sheet and future impairment testing.)

Intangible assets, net

Assets that lack physical substance but have value, such as patents, trademarks, and brand names. 'Net' means accumulated amortization has been deducted. (Increased by $367.678 million due to the rhode acquisition, reflecting the value attributed to acquired brands and intellectual property.)

Operating income

A company's earnings before interest and taxes, reflecting profitability from core business operations. (Decreased substantially to $7.716 million from $27.918 million, indicating pressure on profitability despite sales growth.)

Selling, general and administrative expenses (SG&A)

Costs incurred by a company in the process of selling products and managing the business, excluding cost of goods sold. (Increased by 24.2% to $231.142 million, a primary driver of the decline in operating income.)

Debt-to-equity ratio

A financial leverage ratio that compares a company's total liabilities to its shareholder equity. (Significantly increased due to the acquisition financing, indicating higher financial risk.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, e.l.f. Beauty reported a significant 84.2% decrease in net income for the quarter and a 45.5% decrease year-to-date, despite a 14.2% increase in net sales for the quarter and 11.5% year-to-date. This margin compression is largely attributed to a 24.2% surge in SG&A expenses. The balance sheet shows a dramatic increase in long-term debt (up to $831.551M from $256.676M) and intangible assets/goodwill due to the rhode acquisition, indicating a shift towards a more leveraged and asset-heavy structure.

Key Financial Figures

• $0.01 — ich registered Common Stock, par value $0.01 per share ELF New York Stock Exchange

Filing Documents

• elf-20250930.htm (10-Q) — 1259KB
• q226exhibit311.htm (EX-31.1) — 10KB
• q226exhibit312.htm (EX-31.2) — 10KB
• q226exhibit321.htm (EX-32.1) — 6KB
• 0001600033-25-000058.txt ( ) — 6835KB
• elf-20250930.xsd (EX-101.SCH) — 43KB
• elf-20250930_cal.xml (EX-101.CAL) — 98KB
• elf-20250930_def.xml (EX-101.DEF) — 141KB
• elf-20250930_lab.xml (EX-101.LAB) — 533KB
• elf-20250930_pre.xml (EX-101.PRE) — 369KB
• elf-20250930_htm.xml (XML) — 1043KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION 5

Financial statements (unaudited)

Item 1. Financial statements (unaudited) 5 Condensed consolidated balance sheets 5 Condensed consolidated statements of operations 6 Condensed consolidated statements of comprehensive income 7 Condensed consolidated statements of stockholders' equity 8 Condensed consolidated statements of cash flows 10 Notes to condensed consolidated financial statements (unaudited) 11

Management's discussion and analysis of financial condition and results of operations

Item 2. Management's discussion and analysis of financial condition and results of operations 27

Quantitative and qualitative disclosures about market risk

Item 3. Quantitative and qualitative disclosures about market risk 33

Controls and procedures

Item 4. Controls and procedures 33

OTHER INFORMATION

PART II. OTHER INFORMATION 35

Legal proceedings

Item 1. Legal proceedings 35

Risk factors

Item 1A. Risk factors 35

Unregistered sales of equity securities and use of proceeds

Item 2. Unregistered sales of equity securities and use of proceeds 65

Defaults upon senior securities

Item 3. Defaults upon senior securities 65

Mine safety disclosures

Item 4. Mine safety disclosures 65

Other information

Item 5. Other information 65

Exhibits

Item 6. Exhibits 66

SIGNATURES

SIGNATURES 67 4 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial statements (unaudited)

Item 1. Financial statements (unaudited) e.l.f. Beauty, Inc. and subsidiaries Condensed consolidated balance sheets (unaudited) (in thousands, except share and per share data) September 30, 2025 March 31, 2025 September 30, 2024 Assets Current assets: Cash and cash equivalents $ 194,403 $ 148,692 $ 96,768 Accounts receivable, net 154,688 126,010 146,559 Inventory, net 247,390 187,170 238,798 Prepaid expenses and other current assets 110,756 78,688 71,914 Total current assets 707,237 540,560 554,039 Property and equipment, net 44,419 28,787 15,563 Intangible assets, net 575,376 207,698 216,396 Goodwill 851,830 340,582 340,582 Other assets 139,920 130,548 110,435 Total assets $ 2,318,782 $ 1,248,175 $ 1,237,015 Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 22,500 $ — $ 100,250 Accounts payable 109,296 72,180 93,617 Accrued expenses and other current liabilities 130,074 104,876 117,030 Total current liabilities 261,870 177,056 310,897 Long-term debt 831,551 256,676 156,648 Deferred tax liabilities 20,897 3,812 4,833 Long-term operating lease obligations 55,629 48,721 36,176 Other long-term liabilities 9,826 1,055 766 Total liabilities 1,179,773 487,320 509,320 Commitments and contingencies (Note 8) Stockholders' equity: Common stock, par value of $ 0.01 per share; 250,000,000 shares authorized as of September 30, 2025, March 31, 2025 and September 30, 2024; 59,430,231 , 55,730,037 and 56,331,038 shares issued and outstanding as of September 30, 2025, March 31, 2025 and September 30, 2024, respectively 593 556 562 Additional paid-in capital 1,283,385 942,025 954,455 Accumulated other comprehensive income 971 521 439 Accumulated deficit ( 145,940 ) ( 182,247 ) ( 227,761 ) Total stockholders' equity 1,139,009 760,855 727,695 Total liabilities and stockholders' equity $ 2,318,782 $ 1,248,175 $ 1,237,015 The accompanying notes are an integral part of these condensed consolidated fina