ELF Beauty Stock Plunges 9% as Short Seller Alleges $190 Million Revenue Inflation

Short seller Carson Block accuses ELF Beauty of inflating revenue by $135-$190 million, based on import data and shipping partner conversations. The allegations caused ELF's stock to drop 9%, raising concerns about the company's financial practices.

Staff Editor November 20, 2024

Renowned Short Seller Accuses ELF Beauty of Revenue Inflation

Carson Block, the founder of Muddy Waters Capital and a well-known short seller, has set his sights on ELF Beauty, alleging significant revenue overstatement by the cosmetics company. Block presented his findings at the Sohn Conference in London, causing a stir in the financial community.

According to Block’s report, ELF Beauty may have overstated its revenue by $135 million to $190 million. The accusations are based on import data and conversations with ELF’s shipping partners, suggesting that the company has been selling products it doesn’t possess.

Block claims that ELF Beauty has materially inflated its revenue over the past three quarters. The report alleges that management artificially boosted revenue and profits due to concerns over inventory build-up. Furthermore, it suggests that ELF’s inventory figures are inflated to account for unreceived cash.

Carson Block has a reputation for exposing accounting fraud, particularly in Chinese companies. His track record lends weight to these allegations. Last year, Block accurately predicted a liquidity crisis for a Blackstone REIT, which experienced a nearly 17% decline.

The report details a discrepancy in revenue and inventory growth following ELF’s May earnings report. While ELF claims that inventory changes are due to taking ownership of goods in China, Block disputes this practice. Conversations with China-based shippers reportedly suggest that ELF’s inventory build-up is a result of insufficient sales rather than policy changes.

The market reacted swiftly to Block’s presentation, with ELF Beauty’s stock dropping over 9%. As of now, ELF has not provided a comment to Business Insider regarding these allegations.

This developing story highlights the ongoing scrutiny of corporate financial practices and the significant impact that short sellers can have on market perceptions. As the situation unfolds, investors and industry observers will be closely watching for ELF Beauty’s response and any potential investigations into these claims.