ELF Beauty Q1 profit drops 30% as China tariffs bite

ELF Beauty’s net income fell 30% YoY to $33.3 million in Q1 fiscal 2026 as China tariffs weighed heavily on the affordable cosmetics maker’s profitability, despite the company beating Wall Street expectations on both revenue and earnings per share. ELF’s China dependency drives tariff vulnerability The Oakland-based beauty company, which sources approximately 75% of its products from mainland China, reported net sales rose 9% to $353.7 million for the three months ended June 30, marking its 26th consecutive quarter of growth. However, gross margin contracted approximately 215 basis points to 69%, primarily attributed to tariff impacts. The company currently faces tariffs under 55% on goods from China and has already implemented $1 price increases across its portfolio to partially offset costs. The tariff uncertainty prompted ELF to withhold full-year guidance, instead providing only first-half projections. The company expects net sales growth above 9% and adjusted EBITDA margins of approximately 20% for the first half, down from 23% in the prior-year period. ELF’s adjusted earnings per share of $0.89 exceeded analyst estimates of $0.84, while revenue of $353.7 million slightly beat expectations of $350 million. The company gained 210 basis points of market share during the quarter. Rhode acquisition signals strategic diversification The business completed its $800 million acquisition of Hailey Bieber’s Rhode beauty brand on August 5, funded through $600 million in cash via a new term loan facility and $200 million in stock. The deal includes potential earnout payments of up to $200 million based on three-year performance metrics. “Celebrity power is an important tool for celebrity beauty brand equity. For a brand that goes beyond a single product, it helps create a narrative that resonates with consumers,” says Hwee Chung, China Beauty Insight Director at Kantar Worldpanel. Rhode’s appeal extends beyond celebrity association, anchored by “consumer-backed hero-product performances” like its Peptide Lip Treatment, he adds. Industry experts note that Rhode’s initial success stemmed from massive pre-launch demand. “Rhode was rumored to have 700,000 people on a waitlist pre-launch in 2022, so personality is an enormous draw,” says Zarina Kanji, Managing Director at WPIC Marketing + Technologies. The brand capitalized on viral trends like the “glazed doughnut skin” look and iPhone peptide lip balm case. However, celebrity beauty brands face unique challenges in complex markets like China. “There are several retail and regulatory challenges regarding ingredient approvals, animal testing, and local labeling and claim laws,” Chung says. “Having a beauty giant backing for daily operation in China helps minimize the related risks.” Rhode’s upcoming debut in Sephora stores across the U.S., Canada, and U.K. in September is widely anticipated, though financial impacts won’t be reflected until later quarters. ELF’s skincare line Naturium, acquired in 2023, continued to show growth momentum. To diversify beyond its home market, ELF will enter Sephora stores across six Middle Eastern markets including the UAE, Saudi Arabia, and Qatar later this year. The expansion into Bahrain, Kuwait, and Oman represents the company’s strategy to buffer against U.S. market volatility. Additional reporting by Lisa Nan. Read more: More billion-dollar beauty? Hailey Bieber, Selena Gomez eye exits Why L’Oréal, Estée Lauder, Unilever are going all in on AI What beauty’s 16,000 layoffs reveal

ELF Beauty Q1 profit drops 30% as China tariffs bite

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Published August 07, 2025

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ELF Beauty Q1 profit drops 30% as China tariffs bite