ELF Consumer Staples · Consumer brands · Cosmetics · Growth · Thesis updated August 11, 2026

rhode drives growth while the core business stalls

Q1 FY27 sales saw a sharp divide, with rhode contributing $160 million in the quarter.
The core organic business saw a high single-digit decline in sales and a 3% drop in unit volume.
Management rolled back prices on 10% of items to help stimulate volume growth.
The company launched into the $17 billion hair care category to find new growth.
Production is moving away from China, with 60% expected elsewhere by year end.

01 Running thesis

A tale of two beauty brands

e.l.f. Beauty built its name on affordable cosmetics that feel premium. That formula worked well for years. Today, the growth story has split in two. The company's recent results show that the core business is struggling with unit volume, while the acquired rhode brand is thriving.

The bull case is that management is agile. With rhode generating $160 million in a single quarter, the acquisition is a historic success. The company is using tariff refunds to roll back prices on 10% of core items and is launching a new hair care line to find fresh growth.

The bear case focuses on the core brand. A high single-digit sales decline and a 3% drop in unit volume mean the original engine has stalled. Price rollbacks might help volume but could pressure profit margins if they fail to attract enough buyers.

Finn's view is that the company must prove it can balance both. The next few quarters will show if price cuts can save the core business without hurting the bottom line.

Aug 2026→Q1 FY27 results showed rhode generating $160 million while core organic sales and unit volume declined. Management announced targeted price rollbacks and a new hair care line.

May 2026→FY2026 confirmed the split thesis. rhode drove $293.5 million of the $323.0 million sales increase, while the existing business added only $29.5 million and unit volume fell.

Feb 2026→Q3 sales rose 38%, but rhode supplied nearly all of the growth. The core business grew only $6.0 million, and volume was negative for another quarter.

Nov 2025▼Q2 sales growth improved to 14%, but it came from price and mix rather than more units. Tariffs and higher SG&A kept pressure on profitability.

Aug 2025▼Q1 growth slowed to 9%, far below the prior year's pace. Tariffs cut gross margin, and the rhode deal added both a new growth path and new integration risk.

May 2025▲FY2025 sales rose 28% and gross margin stayed near 71%. The planned rhode purchase added a major new growth catalyst, though SG&A stayed high at 59% of sales.

Feb 2025→Q3 FY2025 sales rose 31%, but e-commerce growth slowed and SG&A rose to 61% of sales. The growth story stayed alive, with a clearer cost question.

Nov 2024▲The initial thesis was built on 40% quarterly sales growth and share gains. The main early risks were customer concentration, China sourcing, higher SG&A, and beauty regulation.

02 Business model

Accessible beauty everywhere

e.l.f. makes money selling cosmetics, skin care, and hair care products. Its brands sit on shelves at major retailers like Target, Walmart, Ulta Beauty, and Sephora. It also sells directly to fans through its own websites.

The company keeps prices low compared to prestige brands. The goal is fast innovation and strong social media marketing. This model works best when new products hit trend cycles perfectly.

When unit volume falls, the model gets tested. The company relies heavily on a few large retail partners. If products sit on shelves too long, those partners can reduce space or demand lower prices.

03 Product portfolio

Expanding categories

Cash cow

e.l.f. Cosmetics

The flagship makeup brand offers a premium feel at low prices, though it faces recent volume pressure.

Steady

e.l.f. SKIN

A skin care line that expands the core value promise beyond color cosmetics.

Growth engine

rhode

The Hailey Bieber founded brand is the primary growth driver, pulling in massive quarterly sales.

Option

e.l.f. Hair

A new entry into the large hair care market with items priced at $10 or less.

Steady

Naturium

Another skin care brand that helps the company reach different buyer groups.

04 Business segments

One segment, two sales channels

Retail channels76%modest

E-commerce channels24%growing fast

e.l.f. reports as a single segment. It sells through retailer channels and direct e-commerce, with retailers historically making up around 76% of sales based on FY2026 data.

05 Risk factors

What could break the story

Core unit volume declines

High impact · High odds

The original e.l.f. brands saw a 3% drop in unit volume recently. Management is cutting prices on some items to fix this. If those cuts fail to bring buyers back, growth will stall.

We watchQuarterly unit volume updates and organic sales growth excluding rhode.

Dependence on rhode

High impact · Medium odds

With rhode pulling in $160 million in one quarter, the company relies heavily on it for growth. This brings key person risk tied to Hailey Bieber.

We watchrhode sales growth and any changes in public support for the founder.

Margin pressure from price cuts

Medium impact · Medium odds

Rolling back prices on 10% of items could hurt profitability if unit sales do not rise enough to cover the difference.

We watchOperating margin and gross margin trends in upcoming quarters.

Retailer concentration

Medium impact · Medium odds

A few large stores account for most sales. These partners can demand better terms or cut shelf space if products stop selling quickly.

We watchInventory comments from retail partners and changes in shelf space.

China supply chain changes

Low impact · Low odds

The company is moving production out of China, aiming for 60% elsewhere by year end. This move lowers tariff risk but introduces new execution risks.

We watchUpdates on the supply chain shift and tariff costs.

06 Quick answers

In one breath

What does e.l.f. Beauty sell?

It sells cosmetics, skin care, and now hair care products under brands like e.l.f. Cosmetics, rhode, and Naturium.

Is the company still growing fast?

Overall sales are growing quickly because of the rhode brand, but the original core business has seen sales and volume decline.

Why are they cutting prices?

Management rolled back prices on about 10% of items to help bring back unit volume growth in the core business.