Elf Beauty, Inc., the 20-year-old cosmetics and skin care company, has posted consistent growth for 23 consecutive quarters – an amazing growth story. But a prominent short seller believes the story is true. According to Carson blockFounder of Muddy Waters, the makeup brand that won over a generation of young women, is increasing her sales.
In a new reportBlock said that in the last three quarters, Eleven “significantly overstated” sales by about $135 million to about $190 million.
“We believe in it Q2 In FY24, Elf management realized its growth story was in trouble as its inventory built up; It appears that Elf then began reporting inflated revenue and profits,” the report said. The company’s inventory also appears to have been significantly inflated as a result, the report adds, “to account for cash that has not actually been received.”
Elf reported that its inventory was growing in the second quarter of fiscal 2024 and disclosed that a recent change in its sourcing practices was responsible for the “sudden appearance” of $36.9 million in additional inventory, according to Block. Elf said part of the inventory change was due to the company taking possession of its product on the Chinese side, rather than the previous practice of only taking possession of it upon delivery to its warehouse in Ontario, California.
He and his team at Muddy Waters interviewed three of the world’s largest suppliers of 11 and a former manager from the Chinese side. As a result, the company stated that Elf’s claim that it had changed sourcing practices was categorically false.
“We understand that Eleven’s long-standing practice was to acquire ownership rights to goods on the Chinese side,” the report said. “Therefore, Elf’s reported inventory build appeared to be due to insufficient sales – rather than a change in purchasing practices.”
Led by Tarang Aminthe CEO and Chairman, is Elf a favorite brand among Generation Z and is growing in popularity among Millennials and Generation Z X. At Elf (which stands for eyes, lips, face), most products cost around $6, a fraction of what other brands charge.
Eleven took third place in 2024 Fortune 100 fastest growing companies List was published last month. The company reported that it generated total revenue of more than $1 billion in fiscal 2024, up about 77% from the previous year.
The company released its second-quarter fiscal 2025 earnings report on Nov. 6. “This was our 23rd consecutive quarter of both net sales growth and market share gains,” Amin said says the press release.
Eleven leans forward heavily on advertisingincluding Super Bowl commercialShe has a large social media presence and has also collaborated with beauty influencers. The company has also turned to AI, with a Generative AI-powered social media bot. The CFO Mandy Fields, said During Fortune’s “Most Power Women” event last month, he emphasized that AI is a collaborative effort, adding that leadership is thinking about the question: “How do we become more efficient and ensure that it is driven by people?” ?”
Assets I reached out to Eleven for comment on the Muddy Waters report but did not receive a response as of press time.