Elf Beauty says short-seller report is 'without merit', analysts defend

Investing.com -- ELF Beauty Inc (NYSE:ELF) said Thursday that allegations from short-seller Muddy Waters (NYSE:WAT) about overstated revenue and inflated inventory figures are "without merit."

Muddy Waters, led by CEO Carson Block, revealed a short position in Elf, alleging the company may have overstated revenue by up to $190 million over the past three years. The firm also accused Elf of inflating inventory numbers to conceal weak sales. These claims were made during a conference in London on Wednesday.

Elf’s stock dropped as much as 16% following the report but recovered most of the losses to close 2.2% lower at $119.

The stock opened 1% higher on Thursday. It has nearly quadrupled since 2023, reaching a record high in March.

"Muddy Waters' latest report is an attempt by a noted short-seller to negatively impact Elf Beauty's share price for its own benefit and at the expense of all other Elf Beauty shareholders, and Muddy Waters' allegations are without merit,” Elf said in its response to allegations.

Elf also noted on Thursday that it had filed a request for confidentiality with US Customs and Border Protection earlier this year to protect competitive information.

"Therefore, import data available to the public after February 6, 2024, does not include a substantial majority of our actual U.S. imports," the company said.

Piper Sandler analysts sided with Elf on the dispute, saying they “remain buyers” of the stock despite the pressure following Muddy Waters’ report.

Regarding the short seller’s claims of overstated inventory, ELF building inventory to support the international launches “is not new news,” analysts said.

As for inflated revenue and profits allegations, analysts point out that the company’s sales in the scanner data remain solid. Moreover they “continue to see enough retail and shelf expansions both domestically and internationally to support overall sales coming in higher than scanned data would suggest.”

“We remain confident in our Overweight thesis, and view ELF as a high growth, high quality name to own in beauty and broader consumer, driven by its ability to continue outperforming the broader US mass market, as well as strength in international and digital," Piper Sandler's team added.