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  "docId": "019dd923-622c-750b-8b99-721c68819c81",
  "docSlug": "82a42fe61ec9",
  "documentTitle": "e.l.f. Beauty, Inc. (ELF)",
  "authorId": "54_Spruce_Point_Capital",
  "authorName": "Spruce Point Capital Management",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2023-11-09 00:00:00",
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  "notes": "The slide uses a 'villain' narrative by linking the company to controversial figures and past legal issues to justify a short position.",
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      "kind": "callout",
      "text": "Brand integrity is critically important to ELF and customer concentration presents a material risk:",
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      "text": "Over the years, ELF has had its share of scandals and ethical lapses, including: 1) Settling charges that it used sanctioned products from North Korea; 2) The sentencing to prison of its Board member for his role in the college admission fraud scandal; 3) Recently acquiring Naturium for $355 million despite numerous critics alleging the founder committed fraud by failing to adhere to FTC guidelines around marketing products she had a financial interest in.",
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      "text": "downside risk: 45%-65%",
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      "kind": "paragraph",
      "text": "ELF trades at a large premium to cosmetic and beauty companies on the belief that its 20%+ revenue growth is sustainable. If ELF’s retail partners or end female customers revolted at its “joy” and “badass” messages while realizing that Movers+Shakers founders remain connected to NXIVM loyalists, we could see 45%-65% downside risk to ELF’s share price as recent sales momentum evaporates.",
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      "kind": "paragraph",
      "text": "Given these previous missteps, we are surprised to see that ELF relies on the services of Movers+Shakers to assist with its viral digital marketing campaigns to broaden its Gen Z appeal. Spruce Point believes that to salvage its brand equity, ELF may need to embark on a new and expensive creative re-branding strategy to restore the public’s confidence that it adheres to its values and aligns with female concerns. Movers+Shakers was recently acquired by Stagwell Inc. (Nasdaq: STGW) on Nov 2nd for approximately $15 million. Though Movers+Shakers is unlikely to be a material contributor to Stagwell’s $2.5 billion of revenue, we believe it is a material factor in ELF’s continued success with its female and Gen Z customer base. As a result, we are short ELF but not Stagwell.",
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      "text": "Brand integrity is critically important to ELF and customer concentration presents a material risk: ELF warns as material risk factors in its 10-K that, “Any damage to our reputation or brands may materially and adversely affect our business, financial condition and results of operations” and that “vendors...could harm our brands.” ELF’s own brand values and “Superpowers” stress, among other things, that it is guided to: 1) Do the right thing, 2) Execute with speed and quality, and 3) Operate cruelty-free (with respect to animals, but by extension, we believe all living beings). We question whether ELF is truly committed to these values. As of March 31, 2023, Target, Walmart and Ulta Beauty represented 25%, 20%, and 15% of net sales, and none of these powerful customers are obligated to continue purchasing from ELF. In addition, each of these material customers have conduct codes for suppliers which describe expectations of ethical behavior.",
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      "kind": "quote",
      "text": "\"Any damage to our reputation or brands may materially and adversely affect our business, financial condition and results of operations\" — e.l.f. Beauty 10-K",
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      "kind": "title",
      "text": "Spruce Point Is Short e.l.f. Beauty And Sees 45% – 65% Downside Risk",
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