BMO Slashes e.l.f. Beauty Price Target On Lack Of Earnings Visibility

e.l.f. Beauty Inc (NYSE: ELF) reported topline results Tuesday that were 4 percent below expectations and guided to fourth-quarter 2019 revenue that's15 percent lower than the current consensus estimate.

The beauty brand has a lack of earnings visibility and is closing its unprofitable retail stores, according to BMO Capital Markets. 

The company is now refocusing on digital and national retailers and increasing its marketing spend in an effort to drive growth, according to the sell-side firm. 

The Analyst

BMO Capital Markets’ Shannon Coyne maintained a Market Perform rating on e.l.f. Beauty and slashed the price target from $14 to $7.

The Thesis

The cosmetics brand missed revenue expectations due to weakness at national retailers as well as lower holiday program sales, Coyne said in a Tuesday note. 

Management guided to sales of $55-$58 million, which represents a decline of 12-17 percent year-on-year. This translates to EPS of 4-6 cents versus the consensus estimate of 11 cents. 

The company also projected an increase in marketing spend to mid-to-high single digits as a percentage of sales versus 4 percent in FY18. Management plans to focus on driving first-to-mass consumer awareness, Coyne said. 

The beauty brand has execution risks tied to its product packaging initiative Project Unicorn, and e.l.f. has not provided any guidance for FY20, citing lack of visibility on the initiative, the analyst said. 

BMO lowered its FY20 EPS estimate for e.l.f. from 70 cents to 47 cents. 

Price Action

Shares of e.l.f. Beauty were down 21.94 percent at $7.40 at the time of publication Wednesday. 

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