Spruce Point Capital Management has shorted e.l.f. Beauty over alleged undisclosed ‘‘concerning connections’’ to Movers+Shakers, a marketing firm used by the cosmetics company and described by the short outfit as having ties to the NXIVM cult.
The short seller said in a short report Thursday morning that Movers+Shakers founders Evan Horowitz and Geoffrey Goldberg had close ties to the upper echelon of NXIVM, including Alison Mack who was sentenced to jail for her role in sex trafficking women.
Spruce Point said neither Horowitz nor Geoffrey faced legal issues over the NXIVM scandal, which ended with leader Keith Raniere sentenced to 120 years in prison for racketeering, sex trafficking of women, forced labor conspiracy and wire fraud conspiracy.
However, it said e.l.f.’s customer concentration and the potential for negative publicity was a key risk to its sales momentum. Target, Walmart and Ulta Beauty, which accounted for 60% of e.l.f.’s net sales at the end of March, have codes of conduct for suppliers which describe expectations of ethical behavior, Spruce Point noted.
“Spruce Point believes that e.l.f.’s valuation is supported by its above market revenue growth. This revenue is highly dependent on its retail channels through Target, Walmart, and Ulta Beauty along with continued appeal with mostly female Gen Z consumers,” the activist said.
“To the extent that e.l.f. receives pushback from these customers related to its association with Movers+Shakers and its perceived messaging and association with the NXIVM cult, there could be material downside to the share price.”
E.l.f. shares were down 2% at $96.15 each in early morning trading Thursday, giving the company a market value of $5.3 billion.
Spruce Point set a price target of $34.35-$54.00 per share, a 45% to 65% downside risk.