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Shares of e.l.f. Beauty shoot 14 percent higher following big earnings beat

Source: Elf

Shares of e.l.f. Beauty shot 14 percent higher after the market closed Wednesday, as the company reported sales and earnings that handily topped Wall Street's forecasts. It also issued a rosier-than-expected outlook for the new fiscal year, as it continues to grow its nascent brand.

The stock was last trading hands at $29.01.

The firm, which applies a fast-fashion model to color cosmetics, grew sales by 17 percent in the fiscal fourth quarter, reaching $76.4 million. It earned 19 cents per share, excluding items, up from 14 cents a year earlier.

Wall Street had expected the company to report earnings of 14 cents per share on $74.5 million in sales.

"Our first strategy as a business is to build a great brand," CEO Tarang Amin told CNBC in an interview.

The business model at e.l.f., which stands for eyes, lips and face, hinges on bringing shoppers high-quality beauty products at a low price. Like fast-fashion retailers, it leans on its supply chain to take costs out of production, and bring a new item to market nearly every week. Its products are sold at retailers including Wal-Mart and Target, as well as its 19 branded stores.

One of e.l.f.'s biggest competitive advantages is its speed. By working closely with its network of suppliers — many of whom it's had a relationship with for more than a decade — e.l.f. is able to plan its products far in advance, Amin said. Meanwhile, the company's small, integrated team allows decisions to be made quickly, removing much of the time that's typically spent waiting for various approvals along the way.

As a result, e.l.f. can bring new products to market in an average 27 weeks. That's dramatically faster than some legacy beauty companies, where it can take two to three years, Amin said.

"Innovation is our key advantage in the marketplace," he said.

The company plans to grow its revenue this year by expanding distribution at existing stores, as well as by adding new accounts. In the last fiscal year, three-fourths of e.l.f.'s sales lift came from existing stores.

For fiscal 2017, the brand is already in the process of expanding its presence on Target's shelves by more than 50 percent. Annually, it plans to open between five and 15 new locations, Amin said. These stores and e.l.f.'s branded website allow the retailer to see which items customers are snatching up, so they can roll them out at a larger scale to the third-party retailers carrying its products.

For the fiscal year that just kicked off, e.l.f. expects to earn between 40 cents and 43 cents a share on $285 million to $295 million in revenue. That compares with a consensus estimate calling for earnings of 37 cents a share on $281 million in sales.

E.l.f. went public in September for an offering price of $17.

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