E.L.F. cosmetic products are seen for sale in a store in Manhattan, New York City, U.S., June 29, 2022. REUTERS/Andrew Kelly

By Prerna Bedi and Anuja Bharat Mistry

(Reuters) -Elf Beauty forecast annual sales and profit below Wall Street estimates on Wednesday, as the cosmetics-maker grapples with higher tariff costs and cautious consumer spending, sending its shares tumbling 26% in extended trading.

The company, which provided its fiscal 2026 forecast after pulling it in May, also missed expectations for second quarter sales.

Elf Beauty expects more than $50 million in annual costs from higher U.S. tariffs on imports in fiscal 2026. China accounts for about 75% of the cosmetics-maker's global production.

Gross margin fell about 165 basis points to 69% in the quarter ended September 30.

Tariffs have sharply reduced Elf's margins, eMarketer analyst Rachel Wolff said, adding that the company is relying heavily on Rhode as sales for its namesake brand begin to slow. The firm acquired Hailey Bieber-owned Rhode earlier this year.

Elf has been streamlining its supply chain and diversifying operations as part of its tariff mitigation plans amid lower-income shoppers seeking cheaper alternatives and cutting back on non-essential purchases, including makeup and skincare.

The company's quarterly adjusted earnings per share of 68 cents topped estimates of 57 cents following $1 price increases in August. Elf said it was not planning additional price increases.

The company's quarterly sales of $343.9 million also missed expectations of $366.4 million.

LACK OF BIG LAUNCHES

"From a marketing standpoint, we had some massive launches last year... we feel great about our innovation this year, but it's not as big as the lip oils were last year," CEO Tarang Amin said in an interview with Reuters.

Last year, Elf was riding on the popularity of its lip oils, which launched in 2023, but gained traction and social media virality in early 2024, helping its shares touch a record high.

The company expects full-year net sales to be between $1.55 billion and $1.57 billion, compared with analysts' estimates of $1.65 billion, according to data compiled by LSEG.

It estimated adjusted profit to be in the range of $2.80 to $2.85 per share, below estimates of $3.58 per share.

(Reporting by Anuja Bharat Mistry and Prerna Bedi in Bengaluru; Editing by Tasim Zahid and Sriraj Kalluvila)