Shares of cosmetics and skincare company
e.l.f. Beauty NYSE: ELF have been consolidating in a tightening range since rallying back up off pandemic lows with the benchmark
S&P 500 index NYSEARCA: SPY. Cosmetic stocks have
been coiling for a breakout with the economic restarts. The Company recently a partnership with 15-time Grammy Award-winning artist Alisha Keys to create a new lifestyle brand bolsters the audience demographic expansion from the current Gen-Z population to Millennials and potentially Gen-X. The acceleration of economic restarts and reopening of businesses plays its core strategy of addressing the need for improving appearances as social, personal and business engagements resume. Prudent investors should watch for opportunistic pullback entries to get exposure to the restart narrative.
Q1 FY 2021 Earnings Release
On Aug. 5, 2020, e.l.f. released its fiscal first-quarter 2021 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) profit of $0.17 excluding non-recurring items versus consensus analyst estimates for a profit of $0.04, beating estimates by $0.13. Revenues rose 8% year-over-year (YoY) to $64.53 million beating analyst estimates by $11.54 million. The strength in digital channels helped to offset the shortfall from the temporary closing of certain retailer stores both domestically and internationally due to the pandemic. The Company closed the quarter with $54.2 million in cash and cash equivalents.
Conference Call Takeaways
The Company gained 100-basis points of U.S. Color Cosmetics market share in the quarter. Gross margins grew to 67% YoY (up from 62%) from shift in sales mix and cost savings partially offset by impact of tariffs on imported goods from China. The quarter was challenged by brick and mortar store closings. Both Walmart NYSE: WMT and Ulta Beauty NASDAQ: ULTA plan to expand e.l.f. space in the fall. Social media campaigns helped accelerate brand awareness during the pandemic.
Driving Digital Growth
The digital-first strategy helped grow digital sales to over 17% of total business as Q1 digital consumption exploded over 100% YoY. App downloads grew by over 130,000 with augmented reality driving conversions. Over half the Q1 retail purchases came from new customers and over 65% of direct consumer sales through the website were new customers. Elf outpaced competitors with Google search (NASDAQ: GOOG) rising 1.5% versus (-9.5%) decline for the category. Page impressions grew 333% YoY surpassing over 5.5 million Instagram NASDAQ: FB followers. The Company’s #eyeslipsface hashtag challenge was the most viral campaign in Tik Tok U.S. history generating over 4.5 million user created videos and over 6 billion views. The Beauty Squad Loyalty Program grew 150% YoY to 2 million members. The brand is most popular with the Gen-Z demographic but the new partnership with Alicia Keys opens up a potentially larger audience base of Millennials to Gen-X.
Alicia Keys Lifestyle Beauty Brand Partnership
e.l.f. Chairman and CEO, Tarang Amin, emphasized that that new partnership with Alicia Keys is not just a “another celebrity beauty line”. It is a deep, highly engaged long-term “robust multi-year, multi-category product pipeline,” being collaborated with Alicia Keys. Investors should be aware of the potential for a whole new franchise appealing to a broader demographic of women. For those who don’t know, Alicia Keys swore off wearing make-up years ago and is wholly immersed in all-natural products. This can’t be understated as getting a partnership with Alicia Keys is a major endorsement for the brand. As schools and colleges start to transition back to live learning from remote learning, e.l.f.’s core base of user volume should improve driving the topline and bottom lines.
ELF Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for ELF stock. Shares have been chopping in a boxed range between the $16.59 to $20.88 Fibonacci (fib) level. The monthly rifle chart has a strong uptrend with a pup breakout and potential stochastic mini pup breakout with the rising 5-period moving average (MA) support at $18.39. The weekly rifle chart shows a consolidation forming ahead of a channel break. The key question is the direction of the break. The weekly market structure low (MSL) buy triggered above $11.40. Shares peaked off he $20.88 upper channel resistance as the weekly stochastic is oscillating down but stalled at the 40-band. The weekly stochastic will either cross back up or resume falling lower with a mini inverse pup. The falling stochastic mini inverse pup can provide opportunistic pullback levels at the $18.55 fib and monthly 5-period MA, $17.31 fib, $16.59 fib and the $15.23 fib. The upside trajectories on a range breakout target the $20.88 to $25.50 range.
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