e.l.f. Beauty faces class action lawsuit after short seller accusations – Cosmetics Business
Legal action has been taken against e.l.f. Beauty following recent claims by Muddy Waters, an investment research firm, that the company misrepresented its financial status. The class action was filed on 6 March, targeting e.l.f. Beauty, CEO Tarang Amin, and CFO Mandy Fields for allegedly inflating revenue, profit, and inventory figures in their financial reports over a period of time.
The lawsuit stems from a report released by Muddy Waters in November 2024, which raised concerns about discrepancies between e.l.f. Beauty’s reported inventory levels and revenue numbers. The class action lawsuit covers investors who bought shares between 1 November 2023 and 19 November 2024, during the period in question.
While e.l.f. Beauty denies the allegations, stating that they are baseless, they are preparing to address them through the legal system. The report by Muddy Waters, totaling 48 pages, claimed that e.l.f. Beauty had significantly overstated its inventory to compensate for revenue that had not actually been generated. Specifically, the report pointed out a $36.9 million increase in inventory during Q2 FY24, which the makeup brand attributed to changes in sourcing practices, but Muddy Waters alleged this was a misleading explanation.
According to Muddy Waters, e.l.f. Beauty had manipulated its financial reports to mask declining sales. The research firm estimated that the company had inflated its revenue by an amount ranging from $135 million to $190 million. In response, e.l.f. Beauty vehemently rejected these claims, asserting that Muddy Waters’ report relied on incomplete information and flawed assumptions while disregarding essential context. The company also highlighted that they had filed a confidentiality request with US Customs and Border Protection earlier in 2024, preventing a significant portion of their import data from being publicly accessible.
Despite the controversy surrounding the allegations, e.l.f. Beauty’s financial performance continued to demonstrate strong growth. The company reported a 40% surge in net sales for the first part of the 2025 fiscal year, although they acknowledged that consumption had been slightly lower than anticipated. In the aftermath of the class action lawsuit becoming public, e.l.f.’s stock value experienced fluctuations, increasing from $64.42 on 6 March to $69.63 on 7 March.
The lawsuit aims to recover losses incurred by investors impacted by the alleged financial misrepresentation by e.l.f. Beauty. Moreover, legal firms involved in the case have advised affected parties to apply for the lead plaintiff position in the lawsuit by 5 May 2025. As of now, e.l.f. Beauty has refrained from providing any additional comments beyond its initial statement refuting the claims made against them.
