E.l.f. Beauty has hit back after hedge fund Muddy Waters alleged the beauty retailer had overestimated sales.
During a conference in London Wednesday, Muddy Waters chief executive officer Carson Block revealed it has taken a short position in the company, claiming E.l.f. materially overstated revenue over the past three quarters, possibly by as much as $190 million, and that reported inventory also appears materially inflated as a result to account for cash that has not really come in.
This pushed E.l.f.’s stock price down 15 percent to $119 million Wednesday. In early trading on Thursday, the stock was up a touch at $119.56.
“Muddy Waters’ latest report is an attempt by a noted short seller to negatively impact E.l.f. Beauty’s share price for its own benefit and at the expense of all other E.l.f. Beauty shareholders, and Muddy Waters’ allegations are without merit,” E.l.f. said in a statement issued Thursday morning. “Muddy Waters has made numerous inaccurate statements about E.l.f. Beauty and our business by relying upon incomplete data and flawed assumptions, omitting critical context and presenting speculation as fact.”
In particular, it stressed that in early 2024, for competitive reasons, E.l.f. filed a request for confidentiality with U.S. Customs and Border Protection to keep a large part of its import data confidential.
“Therefore, import data available to the public after February 6, 2024, does not include a substantial majority of our actual U.S. imports,” it said.
The Oakland, Calif-based beauty company’s net sales increased 40 percent to $301.1 million for its fiscal 2025 second quarter ended Sept. 30, up from $215.5 million a year earlier and beating analysts’ estimates of $289 million.
Ashley Helgans, an analyst at Jefferies, said: “We believe that the short report on E.l.f. released by Muddy Waters could be based on misleading data. In our view, it’s more likely that the large decline in imports as suggested by its data is due to E.l.f. imports being assigned under a different entity name.”
