E.l.f. Beauty, a U.S. makeup brand popular with Generation Z, has announced to acquire Naturium for $355 million to expand its skincare business. The brand, which quickly gained consumer favor on Tiktok, decided to expand its product portfolio after experiencing 18 consecutive quarters of sales growth. Its substantial investment in Super Bowl advertising also signifies its ambitions in the beauty market.
Reported eighteen consecutive quarters of net sales growth
E.l.f. Beauty was founded in 2004 by Joseph Shamah and Scott Vincent Borba with the aim of providing high-quality cosmetics at affordable prices. ELF stands for “Eyes, Lips, Face,” reflecting the brand’s initial focus on these three key areas of makeup. The brand’s product lineup includes a variety of cosmetics such as foundations, concealers, eyeshadows, lipsticks, brushes, skincare, and more. They are known for their innovative formulas, trendy color choices, and user-friendly packaging.
On August 1st of this year, E.l.f. Beauty announced its financial performance for the first quarter of its fiscal year 2024, covering the three-month period ending June 30, 2023. The company reported a significant year-over-year increase of 76% in net sales, reaching $216 million. E.l.f. Beauty attributed the growth to strong performance in both retail and e-commerce channels. The net income, calculated according to GAAP, was $53 million. Additionally, E.l.f. Beauty raised its performance expectations for fiscal year 2024, anticipating a year-over-year net sales growth of 37-39% to $792-802 million, compared to the previous expectation of 22-24% growth.
Based on past performance, the first quarter of fiscal year 2024 marks the 18th consecutive quarter of net sales growth for E.l.f. Beauty. Starting from the fourth quarter of fiscal year 2019, E.l.f. Beauty’s performance has consistently shown stable growth. In other words, since the onset of the pandemic, E.l.f. Beauty has achieved year-over-year growth in net sales every quarter, placing it among the top performers in the cosmetics industry. Over the past 11 quarters, E.l.f. Beauty has achieved at least a 10% increase in net sales, and in the entire fiscal year 2023, the lowest quarterly growth rate was 26%. The net sales for the entire fiscal year 2023 surged by 48% to reach $579 million.
Tarang Amin, e.l.f. Beauty’s Chairman and Chief Executive Officer said, “We are one of only five publicly traded consumer companies out of 274 that has grown for 18 straight quarters and averaged at least 20% sales growth per quarter over that period.”
The recently acquired Naturium was founded in 2019 by The Center, a Los Angeles brand accelerator, and Susan Yara, a beauty influencer and creator of the Mixed Makeup YouTube channel. Naturium is renowned for its ingredient-driven formulations that combine efficacy with an elevated skincare experience at affordable prices. Their product range includes its hero body wash, vitamin C complex serum, and moisturizer with SPF 50. The average price of their products is $18.
Naturium has achieved a compound annual growth rate of approximately 80% in net sales over the past two years. It is projected to reach a net sales figure of around $90 million this year. The acquisition is expected to double E.l.f. Beauty’s share in the skincare retail segment reached approximately 18%. The transaction is anticipated to be completed around September 30, 2023.
Based on the recent financial report, E.l.f. Beauty, a brand beloved by Generation Z, demonstrated exceptional performance in the skincare category this quarter, with a growth of 127%. E.l.f. Beauty has recognized the significant growth potential in the skincare segment.
Tarang Amin Said, “e.l.f. SKIN is one of the fastest growing skin care brands, and Naturium joining e.l.f. Beauty presents a unique opportunity to significantly accelerate the potential we see in skin care.”
Making a comeback with the help of TikTok
In its early days, the founders Alan Shama and Joseph Shama aimed to introduce affordable beauty products that were accessible to all women. The brand’s value proposition of low prices gained significant popularity. Additionally, E.l.f. Beauty’s Chairman and CEO, Tarang Amin, has emphasized the company’s advantage of shortening the product development cycle to 20 weeks, which is considerably shorter than the industry average.
E.l.f. Beauty achieved $1.5 million in sales in its first year of operation. Even after nearly two decades, their products remain inexpensive, typically priced around $3 at retail. By 2016, the company had expanded to 22 retail stores and established partnerships with major retailers in the United States, including Target and Walmart.
In 2016, E.l.f. Beauty successfully went public on the New York Stock Exchange. In the first half of 2016, its sales reached $96.8 million, a 28.7% increase compared to the same period the previous year. The company’s full-year sales for 2015 amounted to $181.4 million, a 25.1% increase from $144.9 million in 2014.
However, with the rise of influential brands like Kylie Cosmetics, E.l.f. Beauty started facing challenges in terms of pricing and marketing, and its growth rate began to slow down. According to a 2018 report, the company experienced a 3% decline in net sales year-over-year. Moreover, since its listing on the New York Stock Exchange, E.l.f. Beauty’s stock price has dropped by 51%.
At this critical juncture, E.l.f. Beauty’s Chairman and CEO, Tarang Amin, made a bold decision to close all of the brand’s physical stores in 2019 and shift the focus to digital platforms. While this decision received considerable skepticism at the time, the outbreak of the COVID-19 pandemic in 2020 turned out to validate the forward-thinking nature of closing physical stores.
Following that, E.l.f. Beauty shifted its marketing focus to TikTok. This happened in 2019 when TikTok was not as widely embraced by brands as it is today, particularly among Generation Z and the beauty industry. E.l.f.’s Chief Marketing Officer, Kory Marchisotto, decided to go all-in and launched a brand hashtag campaign called #Eyeslipsface on TikTok. E.l.f. even created a custom brand song to accompany the challenge, which proved to be immensely popular, reaching the Billboard charts. This campaign helped establish widespread recognition for the E.l.f. Beauty brand and its products quickly gained favor among Generation Z consumers. It was the first time a brand had created its song and featured it in a TikTok campaign. E.l.f. Beauty stood out by embracing new social media platforms faster than other brands.
The #Eyeslipsface hashtag on TikTok garnered over 9 billion views, and the campaign resulted in double-digit sales growth.
Kory Marchisotto said, “A ground-breaking TikTok campaign, a viral chart-topping song, and now the release of a music video in partnership with Republic Records is an illustration of our ability to break the rules of beauty.”
These strategies were undoubtedly bold and effective. By the end of 2020, according to Piper Sandler’s teen survey, E.l.f. Beauty climbed from the fourth most popular cosmetic brand among teenagers in 2019 to the second position.
The data demonstrates that E.l.f. Beauty’s growth outpaced the overall growth rate of the cosmetics industry. In the fiscal year 2021, net sales increased by 12.47% to $284 million. In fiscal year 2022, E.l.f. Beauty achieved a 23.28% year-over-year growth in net sales, reaching $392 million. In fiscal year 2023, net sales grew by 47.61% to $579 million. On August 1st of this year, E.l.f. Beauty released its performance for the first quarter of fiscal year 2024, reporting a substantial 76% year-over-year increase in net sales to $216 million. This marks the 18th consecutive quarter of net sales growth for E.l.f. Beauty.
The investment in TikTok marketing has helped E.l.f. Beauty regained its momentum and became one of the most prominent cosmetic brands among Generation Z consumers.
Ranking third in color cosmetics in mass cosmetics market share
On February 12th of this year, E.l.f. Beauty debuted its first-ever television commercial during the Super Bowl, featuring Emmy and Golden Globe-winning actress Jennifer Coolidge. The 30-second TV ad, co-written by “The White Lotus” creator Mike White, promoted the brand’s best-selling product, the Power Grip Primer, which gained popularity on TikTok for its ability to hold makeup in place while providing a soft-focus effect for smoother-looking skin. E.l.f. described its Super Bowl ad as the “most significant media moment” in the brand’s 19-year history.
The Super Bowl is the annual championship game of the National Football League (NFL), and it has consistently been the most-watched television program in the United States. It has gradually evolved into an unofficial national holiday, with average viewership ranging from 40% to 60%. These viewership numbers far exceed those of the Olympics or the World Cup. While basketball, hockey, and other sports are popular in the United States, none can compare to the influence of the Super Bowl.
Given the immense popularity of the event, advertising costs for Super Bowl commercials are sky-high, reportedly reaching up to $7 million for a 30-second spot. For a brand that has already achieved great success on emerging social media platforms, E.l.f. Beauty’s investment in a Super Bowl ad represents a massive undertaking.
Venturing into television marketing showcases their ambitious aspirations. While E.l.f. Beauty has found success on TikTok, they aim to attract a broader audience and compete with traditional rivals like Covergirl, L’Oréal Paris, and Maybelline. Therefore, gaining a significant presence on a highly watched platform is crucial.
“We want to get more eyeballs. We’re looking for a place where we can get mass reach,” said Kory Marchisotto, E.l.f. chief marketing officer. “The underpinning of all of this is to take E.l.f. to a bigger stage.”
The significant progress in the cosmetics market is one of the reasons why E.l.f. Beauty is willing to invest heavily in advertising during the Super Bowl.
According to E.l.f. Beauty’s annual report for fiscal year 2023, the brand’s market share in the cosmetics industry has surpassed Revlon and Covergirl, reaching 9.5%, second only to Maybelline and L’Oréal. Among the top five mass cosmetics brands, E.l.f. Beauty experienced a growth of 270 basis points, significantly higher than Maybelline’s 45% and L’Oréal’s 25%.
Furthermore, according to Piper Sandler’s 2022 Teen Survey, E.l.f. is the favorite cosmetic brand among Generation Z, surpassing several well-known celebrity brands, including Selena Gomez’s Rare Beauty, Rihanna’s Fenty Beauty, and Charlotte Beauty. E.l.f. Beauty is also among the top ten most popular shopping destinations.
E.l.f. Beauty’s investment in a Super Bowl ad demonstrates the brand’s ambitious aspirations, aiming to attract a wider audience and compete with traditional rivals. The brand has achieved a prominent position in the cosmetics market, becoming one of the most beloved brands among the younger generation. However, this may not be E.l.f. Beauty’s ultimate goal, as it indicates the brand’s determination and ambition to challenge industry giants like L’Oréal.
