The cosmetics and skin care company e.l.f. Beauty, Inc., is denying allegations made by short-seller Carson Block, founder of Muddy Waters Research, that the company has been inflating its revenue.
“Muddy Waters’ latest report is an attempt by a noted short seller to negatively impact e.l.f. Beauty’s share price for its own benefit and at the expense of all other e.l.f. Beauty shareholders, and Muddy Waters’ allegations are without merit,” the company said in a statement released on Thursday and emailed to Fortune.
Muddy Waters has made “numerous inaccurate statements” about the company by relying upon “incomplete data and flawed assumptions, omitting critical context, and presenting speculation as fact,” e.l.f. Beauty stated. The company said it has rigorous controls and procedures around revenue recognition and is “fully confident” in its financial statements.
The response came after Block released a report on Wednesday that alleged e.l.f. Beauty had overstated its revenue, leading investors to sell off shares in the company. The company’s stock fell nearly 20% in the wake of the report but has since more than recovered and, as of midday Thursday, was trading around $126.
The short-seller’s report stated that over the past three quarters, e.l.f. Beauty has “materially overstated revenue” by about $135 million to approximately $190 million. Also, Block claims that in Q2 FY 24, e.l.f. reported that its inventory was growing, and announced that a recent change to its sourcing practices was responsible for the “sudden appearance” of an additional $36.9 million of inventory. He writes that e.l.f. said part of the inventory change came from taking ownership of its product on the China side, instead of its previous practice of taking possession only upon delivery to its Ontario, Calif., warehouse.
Block and his team at Muddy Waters had a conversation with three of e.l.f.’s largest global suppliers and a former China-side manager. As a result, the firm said that e.l.f. Beauty’s claim it changed sourcing practices is categorically false.
But e.l.f. Beauty refutes that argument. “In early 2024, for competitive reasons and as permitted by applicable regulations, we filed a request for confidentiality with U.S. Customs and Border Protection with respect to our customs import data,” the company said. The import data available to the public after Feb. 6, 2024, does not include a substantial majority of e.l.f. Beauty’s actual U.S. imports, according to the company.
The company also states that its inventory control procedures include regular physical and cycle counts across its global distribution network.
The 20-year-old company, led by CEO and chairman Tarang Amin, has won over a generation of young women. On Nov. 6, e.l.f. Beauty reported its second-quarter fiscal 2025 financial results marking 23 consecutive quarters of both net sales growth and market share gains, according to the company. In fiscal 2024 it brought in more than $1 billion in total revenue, around 77% higher than the previous year, according to the company.
After the publication of this story, Muddy Waters founder Carson Block told Fortune in an emailed statement that in addition to the import data, it confirmed with three of e.l.f.’s four major suppliers that the company’s purchases have declined this calendar year. One of the suppliers stated that e.l.f.’s purchases were down due to the company working down its inventory balance, Block said.
