Carson Block is shorting cosmetics company E.L.F. Beauty, saying it’s a ‘revenue and investor mystery’

Carson Block is the founder of short-seller Muddy Waters Capital.

Notorious short-seller Carson Block has a new target: discount cosmetics company E.L.F. Beauty.

The California-based beauty company “seems to sell a product it does not have,” Block said in his report, presented at the Sohn Conference in London on Wednesday.

Using import data and referencing conversations the Muddy Waters founder and his team had with E.L.F.’s global shipping partners, Block believes the company “has materially overstated revenue over the past three quarters — possibly by ~$135 million to ~$190 million,” the report states. Muddy Waters is short the stock, though the size of the position is unclear.

Block’s report said that the firm believes that at the end of last year “ELF management realized its growth narrative was in trouble as its inventory built.”

“It appears that ELF then began reporting inflated revenue and profits,” said the report. “Its reported inventory also appears materially inflated as a result — i.e., to account for cash that has not really come in.”

Block and his firm, Muddy Waters, have been a thorn in the side of plenty of companies, big and small. Last year at the Sohn Conference, he identified a Blackstone REIT he believed was ripe for a “liquidity crunch.” The trust has fallen nearly 17% since his presentation last December.

Block made his name by uncovering accounting fraud at public Chinese companies and remains a skeptic of the market. His latest position has many ties to the country, given that a vast majority of E.L.F.’s inventory comes entirely from China.

Block’s presentation showed how revenues and inventory grew in tandem with inventory imported — until it reported earnings in May of 2024 when the “correlation broke.”

The company said part of the inventory change came from taking the title of its goods in China instead of waiting for it to be shipped to the US to take ownership. But Block found in conversations with China-based shippers used by E.L.F. that this policy has always been in place.

“E.L.F.’s reported inventory build was seemingly due to insufficient sales — not a change in buying practices,” the presentation states.

“This also strongly indicates that E.L.F. was deceiving its auditor at that point (if not earlier), which is a major red flag.”

B-17 has reached the company for comment.

E.L.F. Beauty, trading under the ticker ELF, fell by more than 9% by late Wednesday morning.