By Ananya Mariam Rajesh

(Reuters) – Elf Beauty is likely to report revenue growth of nearly 33% for the second quarter, bucking weak demand in the industry as its inexpensive cosmetics edged out competition.

Expectations of strong sales from Elf are in stark contrast with legacy industry players such as Estee Lauder (NYSE:EL) and L'Oreal that have reported declining sales, as consumers are shying away from buying pricey makeup and cosmetics in major markets including the U.S. and China.

> "They have very broad distribution across online or e-commerce and store channels such as drug stores as well as big box retail … they are where consumers are shopping," eMarketer analyst Sky Canaves said.

The Oakland, California-based company's products are widely available at retailers such as Walmart (NYSE:WMT), Target (NYSE:TGT), and even Amazon (NASDAQ:AMZN), while competition brands such as Coty (NYSE:COTY) and Maybelline by L'Oreal are typically sold at department stores.

Analysts on average are expecting Elf’s second-quarter sales to rise 32.6% to $285.8 million, according to estimates compiled by LSEG. This growth, however, is likely to be its slowest in eight quarters.

Elf's stock, which rose almost 900% since mid-2022 till July's record high of $210.90, has since fallen 51% as analysts and investors flag concerns on stabilizing U.S. sales growth following the record high sales in the last two years.

> "The growth rates that we see for them (Elf) are still materially above a lot of their peers. The shares have obviously been most penalized since last quarter despite clearly a strong beat and an outlook raise, but obviously not enough for a fairly demanding market," analyst Olivia Tong from Raymond James (NS:RYMD) said.

In the latest quarter, Estee withdrew its annual forecast and posted a 4.46% drop in sales, while L'Oreal missed estimates for quarterly sales, mainly due to a higher mix of high-end product offerings in their portfolio as well as weakness in China.