Why Walgreens Is Important For E.L.F. Beauty Products

September 27, 2017

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Courtesy of Benzinga.

Why Walgreens Is Important For E.L.F. Beauty Products

E.L.F. Beauty’s ‘Fast Fashion’ Status Earns A New Buy Rating

Beauty products maker e.l.f. Beauty Inc (NYSE: ELF) is among one of the smallest companies in the sector, but its products are showing up in more stores. The latest major retailer to carry its products is Walgreens Boots Alliance Inc (NASDAQ: WBA), Jefferies’ Stephanie Wissink commented in a research report.

A major element of e.l.f.’s growth story is “tied to new points of engagement for consumers,” Wissink commented (see her track record here). Encouragingly, 126 stock keeping units of e.l.f. were observed on walgreens.com, and the analyst’s own checks found up to 110 SKUs in select stores.

A new distribution partnership between e.l.f. and Walgreens could prove to be “fairly meaningful” given the retailer’s large store count and international presence, the analyst added. This may have been signaled to investors as the beauty company noted $72 million in inventory, which would account for $200 million in revenue on the balance sheet at the end of the second quarter.

Also, e.l.f. guided its fiscal 2017 sales growth to be in a range of 24 to 28 percent, which would imply the new distribution.

While the new distribution roll-out appears to be in the very early stages, it is important to keep in mind that there are 8,175 Walgreens locations across the U.S., which is nearly four times the number of Target Corporation (NYSE: TGT) stores where e.l.f. already sells its products, Wissink emphasized.

Finally, Walgreens already announced it will allocate a larger amount of the sales floor to beauty products at a time when e.l.f.’s brand “has become an important asset to beauty buyers across mass, drug, and specialty,” and sales at Walgreens could outsize Target in total volume.

Wissink maintains a Buy rating on e.l.f.’s stock with an unchanged $30 price target.