Recently, cosmetics company E.l.f. Beauty has come under scrutiny after hedge fund Muddy Waters disclosed a short position, alleging that the company inflated its revenue figures by as much as $190 million over the past three years. Carson Block, the CEO of Muddy Waters, made the accusations at the Sohn Conference in London, triggering a 10% drop in E.l.f. Beauty’s stock.
Block questioned E.l.f. Beauty’s reported inventory practices, particularly a $37 million inventory adjustment from the second quarter of the prior year. The company had attributed the adjustment to a change in ownership timing for inventory sourced from China, claiming it began recognizing ownership upon shipment rather than arrival at U.S. distribution centers.
However, Muddy Waters stated that conversations with Chinese suppliers and a former E.l.f. Beauty manager in China revealed discrepancies in the company’s explanation, deeming the accounting practices “categorically false.”
The hedge fund accused E.l.f. Beauty of inflating inventory figures to mask weaker-than-reported sales. Block further indicated that Muddy Waters would reduce its short position following the release of its detailed findings, citing fiduciary and risk management responsibilities.
E.l.f. Beauty reported a 40% increase in net sales for the second quarter of fiscal year 2025, reaching $301.1 million, primarily driven by strong performance across its U.S. and international retail and e-commerce channels. The brand has stood out in the beauty industry with its relatively affordable pricing, leveraging robust retail and online sales growth, product innovation, and online marketing to achieve success. Over the past five years, E.l.f. Beauty’s revenue has grown by nearly 300%.
