Muddy Waters Smears e.l.f.: Accounting “Contour” Gone Wrong

E.l.f. Beauty really be looking like that meme of Sydney Sweeney crying in the mirror right about now. 

ICYMI, the cult-favorite cosmetics company got absolutely “rekt” after short-selling heavyweight Muddy Waters accused it of a financial contouring so bold it could make Super Micro and the Kardashian sisters jealous.  The fallout? A near 10% nosedive in stock price, investor panic, and enough drama to rival a friggin ‘Sephora aisle on Black Friday.

(Source: Giphy) 

In short, Carson Block, the short-seller extraordinaire behind Muddy Waters, dropped the bombshell at the Sohn Conference in London–where he claims e.l.f. has been sprinkling some creative accounting fairy dust on its books, inflating revenue, profits, and inventory to the tune of $135 million to $190 million over the past three quarters. In Block’s eyes, e.l.f.’s glowing growth story is more smoke and mirrors than actual demand for $6 lipsticks and vegan bronzers.

(Source: Financial Times) 

In addition, the heart of his allegations is a suspicious $36.9 million bump in inventory that e.l.f. said was due to a change in sourcing practices—basically, taking ownership of goods in China instead of waiting for them to clear customs in the U.S. But according to Muddy Waters’ investigation, this new sourcing strategy isn’t new at all. Instead it’s a smokescreen to pad inventory numbers and make revenues look better than a flawless finish foundation. Translation: e.l.f. might have been selling products it didn’t actually have.

Now this didn’t really happen all spontaneously for Muddy Waters and e.l.f.. Block flagged an eyebrow-raising disconnect between e.l.f.’s inventory and revenue growth in its May earnings report. Meaning, for a company that’s been riding the wave of “cheap, ethical, and Instagrammable,” this was more than a little sus. And now, investors are starting to wonder if e.l.f.’s meteoric rise was built on shaky ground, not loyal customers hoarding $3 lip glosses.

(Source: Business of Fashion) 

And if that’s true? It’s the kind of accounting that is giving the cosmetics industry Enron nightmares. Plus add to the fact that Muddy Waters even suggested e.l.f. might have intentionally misled its auditors—it’s no wonder investors yeeted the stock. 

What’s actually interesting here is that, time-wise, Block couldn’t have picked a better—or worse—moment. e.l.f.’s stock has been the toast of Gen Z and millennial investors, thanks to its budget-friendly, cruelty-free products and TikTok-ready vibes. But after hitting its peak earlier this year, the stock has been slowly falling apart, down 15% in 2024. So basically, while Muddy Waters didn’t create the cracks—they just went ahead and kicked them wide open for all to see. 

(Source: Giphy) 

Now at the time of this writing, e.l.f. hasn’t addressed the allegations, which is one way to handle a PR crisis—but probably not the best one. Historically, the brand has shrugged off short-seller attacks. Last year, Spruce Point Capital Management took a swing and missed. But Muddy Waters is a whole different beast. Block’s track record for exposing corporate BS is legendary, and his attention alone is enough to make investors break out in a cold sweat.

(Source: Giphy) 

So, is e.l.f. guilty of cooking the books, or is this just another case of a short-seller crying wolf for a quick payday? Time will tell. What’s certain is that Wall Street hates uncertainty, and right now, e.l.f.’s reputation is as smudged as an eyeliner pencil at the end of an all night rager.

In the meantime, if your “BTFD” senses are tingling—well, all I can say is place your bets accordingly friends. And if this short-seller report spooks you like it does me, well then better to be on the sidelines than in gut-wrenching drawdown, amritie? 

As always, stay safe and stay frosty, friends! Until next time…

P.S. I’ll be honest, I’m not one to overhype things, but here’s the deal: The next alert we’ll be dropping this week? It’s a game-changer. And if you miss out, well, it could be costly. Click here ASAP for the details. 

Stocks.News does not hold positions in companies mentioned in the article.