E.l.f. Beauty Shares Surge on Back of Rhode Acquisition
Kathryn Hopkins
5 min read
Investors gave a big thumbs-up to E.l.f. Beauty’s surprise announcement that it snapped up Hailey Bieber’s Rhode in a deal valued at $1 billion, despite increased pressure from tariffs.
The beauty company’s share price surged 24 percent to close at $111.84 Thursday on the back of the news, which shocked many industry insiders.
The deal marks E.l.f.’s biggest to date, and consists of $800 million in cash and stock payable at closing, and an additional potential earnout consideration of $200 million based on the future growth of the brand over a three-year timeframe. To fund the deal, which is expected to close during the second quarter, E.l.f. secured $600 million in debt financing.
In a research note, Anna Lizzul, an analyst at Bank of America, said she sees the deal as a positive for several reasons, including that since Rhode is an entirely direct-to-consumer brand, E.l.f. has significant distribution opportunity.
This will start to happen soon as it’s launching in Sephora stores in the U.S. and Canada in the fall, and Sephora U.K. by the end of the year. E.l.f. also recently launched its namesake brand at Sephora Mexico and sees opportunities for Rhode there too, as well as other international markets.
During an earnings call with investors, E.l.f. Beauty CEO Tarang Amin said: “Sephora’s standard approach is to test a brand in a subset of stores before scaling. Given Rhode’s breakthrough DTC success and Sephora’s belief in the potential of the brand, Rhode is planned to launch in all Sephora stores across the U.S. and Canada this fall, and in the U.K. by the end of the year. Sephora sees Hailey well beyond her celebrity status. They view her as a thoughtful founder with a unique vision, incredible instinct and desirable aesthetic.”
Lizzul expects Rhode to be accretive to gross margin, EBITDA [earnings before interest, taxes, depreciation and amortization] margin, and earnings, “suggesting room for deeper investments in marketing.”
John Andersen, an analyst at William Blair, shared the same sentiment: “We believe the company is well positioned to be a share gainer in global beauty — cosmetics and skin care — and view the planned acquisition of Rhode as another strong arrow in the company’s quiver. More specific, our recent review of [legacy] E.l.f. Beauty’s brand and white space opportunities suggest it can grow sales at a double-digit rate and can become a $3 billion business at retail by 2030, and Rhode should now be incremental to that.”
Ashley Helgans of Jefferies added that she was “excited by the deal as we view it as additive to the E.l.f. portfolio with significant runway ahead.”
Staying more on the cautious side, Oliver Chen of TD Cowen stressed that the main question with the Rhode acquisition is whether the brand has longevity beyond its celebrity hype.
Nevertheless, he said: “We are impressed with Rhode’s ability to generate $212 million in sales in three years just through its DTC channel. Sephora rollout in the fall means built-in growth, and we believe E.l.f. will allow Rhode to have independence and keep the integrity and authenticity of the brand. Our estimate indicates 15 percent and 29 percent accretion to EPS in FY26 and FY27, respectively, assuming Rhode has high 70 percent gross margins, and high 50 percent SG&A as a percentage of sales.”
The so-called celebrity hype aspect is certainly not an issue for Amin.
“Hailey is well beyond a celebrity,” Amin stressed during the earnings call with investors. “She is one of the most thoughtful founders I’ve ever met. She has great instincts, a desirable aesthetic — and it’s not just me. Sephora is thoroughly impressed with her, everyone who’s met her. Second, it’s incredibly hard to scale a brand in our space. To be able to do $212 million, DTC only in net sales is simply incredible and talks to the strength of the consumer conviction behind the brand.”
As for whether this will pave the way for more deals to happen in a slow beauty M&A market, Ashleigh Barker, a director at Lincoln International’s consumer group, told WWD: “I don’t think it’s a one-off, but I would caution that not every other deal that is in the market or gets done will necessarily be traded at this type of valuation or with this level of interest from a strategic like E.l.f. There were a lot of fundamentals in place that set this up to be the successful transaction that it was.”
This is the second big acquisition for E.l.f. In August 2023, it acquired masstige skin care brand Naturium from The Center for $333 million as a broader strategy to give the company cachet in the skin care category.
With that acquisition, it doubled its penetration within skin care to 20 percent and wasted no time in expanding Naturium’s footprint into Ulta Beauty in the U.S. and Shopper’s Drug Mart in Canada.
Amin noted that every brand in the E.l.f. Beauty stable saw growth last year, with Naturium sales reaching all-time highs.
In regards to tariffs, of which E.l.f. Is heavily exposed with 75 percent of products manufactured in China, analysts also seemed not too concerned.
“Management estimates the current China tariff level represents an annual gross impact to cost of goods of about $50 million,” said Andersen. “However, we see the opportunity to substantially mitigate the tariff impact via pricing as well as cost reductions and supplier concessions.”
Last week, E.l.f. announced that all prices would increase by $1.
