Elf Beauty Inc. is denying claims by short seller Carson Block, founder of Muddy Water Research, that the cosmetics and skincare company is inflating its earnings.
“Muddy Waters’ latest report is an attempt by a known short seller to manipulate Elf Beauty’s share price to his own advantage and to the detriment of all other Elf Beauty shareholders, and Muddy Waters’ The allegations are without merit.” A statement was released and emailed Thursday. good luck.
Muddy Waters made “numerous misrepresentations” about the company, including “incomplete data and incorrect assumptions, excluding critical context, and presenting speculation as fact.” The company said it has strict controls and procedures in place around revenue recognition and has “full confidence” in its financial statements.
The reaction came after Block released a report on Wednesday that said Elf had overstated its earnings, prompting investors to sell the company’s shares. Elf Beauty stock fell nearly 20 percent in the wake of the report, but has since recovered and was trading around $126 as of mid-Thursday.
Over the past three quarters, Elf has “materially overstated earnings” by about $135 million to about $190 million, the short seller’s report said. Also, Block claims that, in Q2 FY 24, elf reported that its inventory was increasing, and announced that a recent change in its sourcing practices was responsible for the “sudden appearance” of $36.9 million of additional inventory. is He writes that Elf said part of the change in inventory came from China taking ownership of its products, rather than its predecessor of taking possession after delivery at its Ontario, Calif., warehouse. Instead of action.
At Muddy Waters, Block and his team spoke with three of Elf’s largest global suppliers and a former China-side manager. As a result, the firm said that Elf’s claim that it has changed its sourcing practices is patently false.
elf Beauty refutes this argument. “In early 2024, for competitive reasons and as permitted by applicable regulations, we filed a confidentiality request with U.S. Customs and Border Protection regarding our customs import data,” the company said. According to the company, publicly available import data after February 6, 2024 does not include a substantial number of actual U.S. imports of Elf.
elf also describes its inventory control procedures, including regular physical and cycle counts across its global distribution network.
Led by CEO and Chairman Tarang Amin, the 20-year-old company has won over a generation of young women. Elf reported its second quarter fiscal 2025 financial results on Nov. 6, marking 23 consecutive quarters of both net sales growth and market share growth, according to the company. According to the company, it will achieve more than $1 billion in total revenue in fiscal year 2024, up nearly 77 percent from the previous year.
