Yesterday, E.l.f. Beauty has firmly dismissed allegations of revenue fraud by short-seller Muddy Waters, labeling them as “without merit.” The claims, made by the hedge fund’s founder Carson Block during a London conference, suggest that Elf overstated its revenue by as much as $190 million over the past three years and inflated inventory figures to obscure weak sales.
In response, E.l.f. Beauty accused Muddy Waters of attempting to manipulate its stock price for personal gain, emphasizing that the allegations lack foundation. “Muddy Waters’ latest report is an attempt by a noted short-seller to negatively impact Elf Beauty’s share price for its own benefit and at the expense of all other Elf Beauty shareholders,” the company stated.
Shares of Elf Beauty have demonstrated significant volatility following the accusations, falling by as much as 16% before rebounding 6%. Despite this, the stock remains a standout in the beauty sector, having nearly quadrupled in value since 2023 and reaching a record high in March 2024.
E.l.f. recently raised its forecasts for annual sales and profit, outperforming competitors in a challenging beauty market. Legacy brands like Estee Lauder and L’Oréal have struggled with slowing demand, while Elf has continued to grow. The company also clarified its early 2024 request for confidentiality with U.S. Customs and Border Protection regarding import data, noting that public records since February 6, 2024, no longer reflect the majority of its actual U.S. imports.
Muddy Waters, however, remains unconvinced. The hedge fund claims discussions with Chinese suppliers and a former manager reveal inconsistencies in Elf’s inventory accounting. Block criticized Elf’s rebuttal, saying it “failed to address our finding that Elf’s inventory increase could not have been due to a sourcing process change.”
