e.l.f. Beauty stock pops on Q3 earnings

Yahoo Finance Live anchors discuss third-quarter earnings for e.l.f. Beauty.

Video transcript

BRAD SMITH: We also want to take a look at the stock performance this morning of shares of ELF Beauty, following a glowing quarter, a sparkling quarter, if you will. There's so many ways to classify it, but they topped estimates on the top and bottom line. The cosmetics company growing net sales by 49%. That was primarily driven by strength in both its retailer and e-commerce channel.

So really flossing the gloss here, not just with the net sales growth, but additionally with the market share gains. They gained about 150 basis points of market share the company had talked about. And particularly, this was one of their biggest net sales growth quarters in, I believe, the last four years. And so it does kind of beg the question of, all right, what were the comps that they were going up against? But, again, at the same time, where some of those little luxuries might be being leaned into, especially within those wholesale partners that ELF does have.

BRIAN SOZZI: No, I think this solidifies probably a good quarter from Ulta when it reports here in a couple of weeks. This is a very good quarter by ELF, or ELF, as I like to call it. And it comes despite them raising prices. Now they're-- despite those price hikes, their products are still seen as very affordable. The product assortment is very broad. So they have a gaining share in this market.

And it is interesting to see this-- take this report, a very value focused cosmetics play. You saw McDonald's earnings earlier in the week blow everyone away. You just get the sense that there is some tradedown happening. I know the market's very excited about the potential-- the stop in rates. But a lot of consumers out there are really struggling and are looking for ways to save money. And I think you're seeing that through the prism of these ELF results. And you saw them in the prism of McDonald's, and you probably see, I would suspect, even the dollar stores when they report in a couple of weeks.

JULIE HYMAN: I mean, maybe they're trading down in terms of brand, but it sounds like from looking at some of the analyst commentary, that they're actually buying the upper end of the ELF products. Now is that still cheaper than a more premium brand? Probably, but if they're trading down in brand, they're still allowing themselves some latitude, I guess, within the brand here. So that seems to be helping matters.

BRIAN SOZZI: It is cheaper. It is cheaper. A lot of these products, Julie, sell between $5 and $15.

JULIE HYMAN: Right.

BRIAN SOZZI: You go to Ulta. I mean, you could drop $100, $200 a pop in here for some of their cosmetics. So ELF is really seen as the price leader with a big presence in Walmart, too, which, of course, is the value king.

BRAD SMITH: Yeah, a lot of people adding a little bit more elf on the shelf for at least the bathroom shelf during the quarter, and that directly trickling through to some of the gross margins for gross margin. And this comes back to your point, Julie, of where within that product mix they may have been purchasing. The gross margin, that increased by about 255 basis points, 67%. But again, price increases, cost savings, product mix, and then the inventory adjustments, they said, that kind of offset some of that gross margin growth.

JULIE HYMAN: One more pun.

BRAD SMITH: One more?

JULIE HYMAN: Olivia Tong over at Raymond James called the results flawless.

BRAD SMITH: Flawless. I wake up like this.

JULIE HYMAN: Yeah, exactly.

BRAD SMITH: Flawless.