By Granth Vanaik

(Reuters) - Elf Beauty ( ELF ) projected annual sales and profit below Wall Street expectations on Wednesday, in a sign that sticky inflation has left little room for Americans to spend on affordable luxuries such as cosmetic and skincare products.

However, the California-based firm topped estimates for fourth-quarter revenue and profit.

WHY IT'S IMPORTANT

While beauty companies such as Elf managed to sustain the post-pandemic demand boom, the forecast indicates that still-high food prices and interest rates have forced customers to prioritize needs-based goods over discretionary purchases.

CONTEXT

Last month, retailer Ulta Beauty flagged a slowdown in demand across categories in the first quarter.

U.S. retail sales for cosmetics and beauty products are expected to grow by 6.9% in 2024, compared with 10.5% increase seen in 2023, according to data analytics firm Emarketer.

Analysts at UBS have also noted that Elf has a history of providing conservative full-year targets.

KEY QUOTE

"We do like to take things one quarter at a time ... it's very hard to kind of grow 80% on top of 80%," said CEO Tarang Amin in an interview with Reuters, adding that the first initial outlook is "very strong."

Amin also noted that Elf is seeing overall "good behavior" from a consumer standpoint.

BY THE NUMBERS

Elf expects 2025 sales to be between $1.23 billion and $1.25 billion, below expectations of about $1.27 billion, according to LSEG data.

The company expects annual adjusted profit to be between $3.20 and $3.25 per share, versus estimates of $3.51 apiece.

Net sales rose 71.4% to $321.1 million in the fourth quarter, beating estimates of about $292.6 million. In the previous quarter, sales grew by 84.9%.

It posted adjusted profit of 53 cents per share, topping expectations of 32 cents.

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