By: JV Staff
Marathon Partners Equity Management LLC has nominated a trio of directors to e.l.f. Beauty Inc.’s board of directors.
In this current age of COVID-19, the move is an unusual one.
The company, which together with its affiliates is one of the largest stockholders of e.l.f. Beauty, Inc., nominated Beth Birnbaum, Mario Cibelli and Dhiren Fonseca, for election to e.l.f.’s Board of Directors at the 2020 Annual Meeting of Stockholders of the Company scheduled to be held on August 27, 2020.
Since its IPO in September of 2016, e.l.f.’s share price has underperformed all major indices and other relevant consumer peer groups, even though the Company has successfully grown both revenues and gross profits for years, the firm said in a release. Despite winning incremental shelf space, expanding to new retailer partners and growing internationally since its IPO, Marathon Partners believes that e.l.f.’s lack of discipline in managing overhead expenses has deprived shareholders of profit growth, and therefore, investment returns.
E.l.f. Chairman and CEO Tarang Amin said that in 2018 when the company saw a slump in sales, “for us it seemed like death.”
According to a February 2020 article on the glossy.co web site e.l.f closed its 22 standalone stores in February of 2019 which helped free up $13.7 in capital which it used for e-commerce and wholesale through its Project Unicorn plan. It was hoped that this would turn the company around from a financial perspective.
He told the publication at the time that, “We came back to what our real superpower is, which is creating these prestige-quality products at these unbelievable prices; as we looked at our business, we said, ‘This is what we uniquely do.’
He added that “in 2018, we found ourselves caught in this trap of launching lots of new products very fast. In 2018, I think we launched almost 120 products, and we could do it in as fast as 13 weeks. We got so into how many products we were launching and how fast we were launching that we took our eyes away from what was most important in those launches, and it’s our unique ability to bring the best of beauty and make it accessible.
“In 2019, we brought innovations to market and put greater support behind them. That increase in marketing support that we got from closing the stores gave us the field to really make prominent things like our Poreless Putty Primer at $8 — the only other thing like it in the market was Tatcha’s Silk Canvas at $52 — or our camo concealers, which also did incredibly well. The only other thing like it is a prestige item at $26. Those are the items our retailers wanted, that our consumers wanted.”
“Given such poor performance, Marathon Partners believes a special committee of the Board should be immediately formed to explore ways to improve shareholder value, including holding e.l.f.’s management accountable for its heavy cost structure, lucrative executive compensation and strategic decisions that have not produced benefits for stockholders,” the company noted.
Marathon Partners “seeks Board representation and key committee placements to help align management incentives and drive improved performance for shareholders. The slate of directors also intends to clean up corporate governance weaknesses left in place by TPG Growth and its former executive, Bill McGlashan. Among other areas, this includes adding a say-on-pay resolution in the Company’s proxy statement for shareholders to vote on at the Annual Meeting, as well as the elimination of the “evergreen” provision allowing for egregious equity dilution without shareholder approval. Marathon Partners strongly believes that the e.l.f. shareholders deserve a vote on share issuance tied to executive compensation plans,” according to the release.
Mario Cibelli, managing member of Marathon Partners, pointed out: “We have constructively engaged with the management team and Board of e.l.f. for almost two years at this point. We continue to be frustrated by the directors’ willingness to tolerate obvious underperformance, all the while richly rewarding the senior executive team despite the lack of profit growth and shareholder returns. After almost four years of no progress for the public shareholders, it is time for change at the Board level and to begin a process of investigating new ideas for improving shareholder value. We are confident that our slate can bring great energy and fresh perspectives on helping to solve critical shareholder issues.”
