NEW YORK, March 26, 2025 (GLOBE NEWSWIRE) — Pomerantz LLP announces that a class action lawsuit has been filed against e.l.f. Beauty, Inc. (“Elf” or the “Company”) (NYSE: ELF) and certain officers. The class action, filed in the United States District Court for the Northern District of California, and docketed under 25-cv-02316, is on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired Elf securities between November 1, 2023 and November 19, 2024, both dates inclusive (the “Class Period”), seeking to recover damages caused by Defendants’ violations of the federal securities laws and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, against the Company and certain of its top officials.
If you are an investor who purchased or otherwise acquired Elf securities during the Class Period, you have until May 5, 2025 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Danielle Peyton at newaction@pomlaw.com or 646-581-9980 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
[Click here for information about joining the class action]
Elf, together with its subsidiaries, provides cosmetic and skin care products under the e.l.f. Cosmetics, e.l.f. Skin, Well People, Naturium, and Keys Soulcare brand names. The Company employs an “omni-channel distribution strategy” and sells its products with retailers in the United States, as well as internationally. Elf also sells its products online through its own direct e-commerce channels, as well as through other e-commerce websites. According to the Company’s “value proposition,” “[e]ach of [its] brands has accessible pricing relative to its competitive set and furthers [the Company’s] mission of making the best of beauty accessible to every eye, lip, face and skin concern. As an example, e.l.f. Cosmetics’ average product price point is approximately $6, as compared to other leading mass cosmetics brands which have average product price points over $9 and prestige cosmetics brands which have average product price points over $20, according to Nielsen.”
The Company purports to have developed a “scalable, asset-light supply chain centered on the combination of speed to market, high-quality and low costs.” Substantially all of the Company’s products are sourced and manufactured in China through “close collaboration with a network of third-party manufacturers.” Elf has also touted that it has “ample manufacturing capacity as well as redundant capabilities in the event that one or more suppliers cannot meet [its] needs” and that its “broad supply base gives [it] the ability to fulfill [its] product requirements and remain cost competitive.”
As a retail company, effective inventory management is critical to Elf’s financial performance. Specifically, the Company derives revenue from “sales of [its] beauty products, net of provisions for sales discounts and allowances, product returns, markdowns and price adjustments.” Accordingly, Elf’s profitability depends, in large part, on ensuring that it maintains a volume of inventory that will allow the Company to effectively sell its products at a level that will meet customer demand. Conversely, Elf maintaining a level of inventory that is excessive relative to customer demand will result in the Company holding products that cannot be effectively sold and must therefore be written down or sold at a loss, thereby negatively impacting its profitability.
As its investors would eventually learn, Elf’s inventory management was woefully ineffective. In fiscal Q2 2024, the Company began identifying growth concerns when inventory levels rose as a consequence of flagging sales. However, Elf concealed this issue from investors. Instead, the Company described itself at all relevant times as one of a “rarified group of high-growth companies” with “strong relationships with [its] retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled [it] to expand distribution both domestically and internationally” and consistently maintained that “the combination of its value proposition, innovation engine, ability to attract and engage consumers, and its world-class team’s ability to execute with speed, has positioned the Company well to navigate the competitive beauty market.”
The complaint alleges that, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) contrary to its representations to investors, the Company was experiencing rising inventory levels as a consequence of flagging sales; (ii) Elf falsely attributed the rising inventory levels to, among other things, changes in its sourcing practices; (iii) to maintain investor confidence, Elf reported inflated revenue, profits, and inventory over several quarters; (iv) accordingly. the Company’s business and/or financial prospects were overstated; (v) all of the foregoing, once revealed, would likely have a material negative impact on the Company; and (vi) as a result, the Company’s public statements were materially false and misleading at all relevant times.
On November 20, 2024, Muddy Waters Research (“Muddy Waters”) published a report entitled “e.l.f. Beauty, Inc. A Revenue and Inventory Mystery”, alleging that Elf had “materially overstated revenue over the past three quarters,” and that in “Q2 FY24, ELF management realized its growth narrative was in trouble as its inventory built. It appears that ELF then began reporting inflated revenue and profits. Its reported inventory also appears materially inflated as a result – i.e., to account for cash that has not really come in.” Further, Muddy Waters accused the Company of concealing its inventory challenges from investors by falsely attributing its rising inventory levels to supposed changes in its sourcing practices rather than the true cause—insufficient sales.
On this news, Elf’s stock price fell $2.71 per share, or 2.23%, to close at $119.00 per share on November 20, 2024.
Elf’s share price continued to fall. After the Class Period ended, on February 6, 2025, Elf released its fiscal Q3 2024 results and provided its fiscal 2025 outlook. Specifically, Elf revealed that it expected full-year fiscal 2025 net sales growth to be 27%-28%, down from the previous guidance of 28-30%, and also revised its adjusted EBITDA guidance to $289-293 million, down from $304-308 million, resulting in part from the updated sales outlook and a $7 million foreign currency loss. Further, the Company stated that it anticipated net sales growth was lowered to -1% to +2%, with management explaining that this reflected prudence amid softer consumption trends, challenging category conditions, and slower-than-expected new product performance.
On March 5, 2025—i.e., the last trading session before the filing of this Complaint—Elf’s stock price closed at $64.67 per share, representing a total decline of $57.04 per share, or nearly 47%, since the truth about the Company’s inventory management and revenue first came to light.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, London, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered billions of dollars in damages awards on behalf of class members. See www.pomlaw.com.
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