Marathon Partners called ELF Beauty “undervalued,” in a 13D filing. The cosmetics company may prosper in a stay-at-home world.

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On March 4, Marathon Partners called ELF Beauty “undervalued” in a 13D filing with the SEC. The New York City-based hedge fund disclosed a 5.2% stake, and said in the filing it has “engaged, and plans to continue to engage, with the Issuer’s management and Board of Directors regarding opportunities to significantly enhance shareholder value.”

Oakland, CA-based e.l.f. Beauty Inc (ELF) sells cosmetics and skin care products at relatively low price points online and via retail stores.

After touching an all-time-high of $20 on Feb. 14, ELF shares plummeted to a low of $7.58 on March 19 during the coronavirus sell-off. The stock has since rallied to $12.55, still 37% off its highs.

e.l.f. Beauty Inc. (ELF) daily one year chart. Source: Interactive Brokers

ELF recently reaffirmed fiscal 2020 guidance.

On March 30, ELF reaffirmed its fiscal 2020 guidance, previously issued on February 5, noting “the strong execution of its five strategic imperatives.” The company anticipates net sales of $274-277M, up 7 to 8 percent year over year, excluding the contribution of e.l.f. retail stores. Adjusted EPS is projected to be between $0.55 – $0.59 for fiscal 2020.

The company also addressed how operations have been impacted by the pandemic and resulting lockdowns.

COVID-19 Business Update

  • While the Company is reaffirming net sales guidance for fiscal 2020, it’s seen a significant decline in retail sales over the last two weeks due to the impact of COVID-19 on consumer behavior. e.l.f. anticipates its sales and Nielsen tracked channel results to be negatively impacted until consumers return to normal shopping patterns.
  • The Company is focused on e.l.f.’s relative performance to the category and the opportunity to build market share.
  • The Company has a strong liquidity position. As of today, the Company has approximately $45 million in cash on hand and access to a $50 million dollar revolving credit facility. The Company is seeking to reduce working capital, better match marketing expense to demand, and explore other areas to reduce operational costs.
  • Longer-term, the Company remains confident in its core value proposition of delivering prestige quality cosmetics and skin care at extraordinary prices.

JPMorgan expects ELF to benefit from consumers downtrading to the company’s less expensive cosmetics during the recession.

On April 14, JPMorgan analyst Andrea Teixeira named ELF one of the firms’s top picks in the U.S. household products and person care sector. “We expect ELF to gain share not only from its mass peers like COTY’s Covergirl brand or L’Oreal’s Maybelline brand but also benefit from consumers downtrading from prestige cosmetics amid the recession. Current valuation offers an attractive entry point, in our view.”

Marathon Partners called ELF Beauty “undervalued” in its May 4 13D activist filing, apparently agreeing with JPMorgan’s assessment. The $284M fund is owned and managed by Mario Cibelli. He founded the Marathon Partners in 2001.

The 13D reflected a 582,000 ELF share purchase between March 19 and April 24, which raised the fund’s stake to 5.2%. ELF is Marathon’s 2nd largest long holding, representing about 18% of the fund’s 13F portfolio. As of Q4 2019’s close, Marathon held 3.9 million shares of ELF, or about a 7.82% stake. But on Feb. 6-13, the fund sold 1.89 million shares, dropping Marathon’s stake below 5%. But after the big drop in ELF’s price, Marathon once again became a buyer.

Marathon Partners Portfolio as of Q4’s close, with ELF position reflecting recent 13D filing.

StockSymbolShares HeldMarket Value% of PortfolioRankingChange in shares
Grubhub incGRUB902,50043,898,00023.2556%1507,500
E.l.f. beauty incELF2,595,20033,919,26417.9692%2582,500
Hd supply holdings incHDS785,00031,573,00016.7262%3-350,000
Facebook incFB112,50023,091,00012.2328%40
Paypal holdings incPYPL168,00018,173,0009.6274%5-27,000
Us foods holding corpUSFD395,00016,547,0008.766%6-250,000
World wrestling entertainment incWWE135,0008,757,0004.6391%760,000
J. alexanders holdings incJAX540,0005,162,0002.7346%8-65,000
Alphabet inc. class aGOOGL2,3003,081,0001.6322%90
Alphabet inc. class cGOOG2,3003,075,0001.629%100
Uber technologies incUBER50,0001,487,0000.7878%1150,000

You can follow insider buying and other SEC filings at the SEC’s Edgar website or at sites like WhaleWisdom.com.

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