Warpaint London PLC: In a Nutshell
Warpaint London PLC (W7L) is a high-growth, asset-light cosmetics company operating primarily in the “Value” and “Masstige” segments
The company has demonstrated exceptional execution, multiplying revenues by 6X between 2015 and 2024. Most of this expansion has been organic.
Asset-light business with the capacity to generate high ROIC.
Strong balance sheet with net cash of £17 million.
Founder-Led Management: The business is run by its founders, Sam Bazini and Eoin Macleod, who collectively own ~40% of the shares. Their conservative capital allocation and high “Skin in the Game” ensure strong alignment with minority shareholders.
Attractive valuation At ~10x P/E trades at a discount by any valuation method used
Cyclical Headwind, Structural Tailwind: While macroeconomic factors are having an impact on the sector, especially in the UK, the long-term structural growth of the “Value” cosmetics market remains intact.
Business Model
Warpaint sells cosmetics under multiple brands, with W7 serving as its flagship. Warpaint focuses on design, branding, and distribution, while manufacturing is outsourced. This makes the company an Asset-Light business that consistently generates high Returns on Invested Capital (ROIC 2023: 35%, ROIC 2024: 37%).
The company’s manufacturers are primarily based in China, though it also works with European suppliers. The Group’s main suppliers also manufacture for many international brands. Supplier concentration was once one of the company’s main risks, but thanks to high growth—multiplying its revenues by 6X between 2015 and 2024—this risk has been significantly diluted. In 2015, the company’s main supplier was responsible for over 60% of W7 products; by 2024, that figure had dropped to just 17.3%.
Revenue by segment
In addition to its own branded products, Warpaint also generates complementary revenue from private label (4.2% of 2024 sales) and close-out sales (2.2% of 2024 sales).
Close-out: Close-out refers to purchasing surplus inventory from manufacturers, retailers, or distributors. They buy large quantities in bulk at very low prices and resell them to retailers, typically discount chains like B&M.
W7: Accounting for 64% of sales in 2024 and 60% in H1 2025, W7 is the company’s flagship brand. It was launched in 2002 and named after the W7 postcode prefix in West London, where the business was originally based. It is the brand that generates the highest margin for the company. It offers affordable color cosmetics, focused on fast fashion and viral products that imitate luxury products.
Technic Brands: This is a collection of brands acquired from Retra Holdings in 2017, which includes Technic, Body Collection, Man’stuff, and the white label business. In 2024, this group of brands generated 29.2% of sales, and 24% in H1 2025. These brands had a very high bias towards gifting, with most sales occurring during the Christmas season. Since the acquisition, the company has been working to transition them into continuous-use brands and has significantly reduced the weight of gifting.
BAR Brands: Acquired in February of this year, this group generated 12.3% of the company’s sales in H1 2025. BAR brands include Skin & Tan, Super Facialist, Dirty Works, and Fish Soho. These products are focused on female beauty, skincare, self-tan, and male grooming.
Revenue by Geography
The company sells its products worldwide, with Europe and the UK being its most important markets. The company’s plans include growing in the U.S. and China.
Company Strategy
Warpaint positions itself in the mass-market segment, and within that, in the value market, offering affordable products with a strong price-to-quality ratio.
The company adopts a follower strategy, especially with its W7 brand, which involves imitating products that are trending and quickly launching them to market at an affordable price. This follower strategy is more cost-effective and allows the company to minimize spending on R&D.
Marketing
Warpaint does not advertise through traditional mass media channels; instead, it focuses on digital marketing and social media, utilizing influencers. Furthermore, it offers free samples to retail clients who purchase a sufficient volume of stock and attends trade shows.
Sales Channels
They focus on selling through large retailers, supermarkets, and pharmacies (Boots, Tesco, Five Below, CVS), guaranteeing volume and consumer accessibility. Warpaint has a strong track record of winning and expanding within large retail customers. Typically, when the company reaches an agreement with a client, its products are launched as a pilot in a small number of stores, and if successful, they are expanded to the rest of the locations.
Warpaint currently has the potential to multiply the number of stores in which they sell their products by 3x just among existing customers, without needing to acquire new clients.
Warpaint’s distribution model, heavily reliant on mass-market retail chains, inevitably results in high client concentration. This is best exemplified by a single European customer (the Danish value retailer Normal), which accounted for $27.2% of Group revenue in 2024. While this represents a significant counterparty risk, this concentration also enables Warpaint to grow rapidly and efficiently. This concentration risk is expected to mitigate over time as Warpaint increases its overall scale.
Since COVID, the company has been accelerating its online sales. E-commerce revenue has grown from £0.2m in 2019 to £8.4m in 2024. Despite this growth, the main focus remains on large retailers.
A key part of the value Warpaint offers to major chains is its ability to hold large volumes of inventory and provide on-time delivery. Given that most products are manufactured in China—and shipping can take up to 30 days—Warpaint keeps around six months of inventory on hand to meet demand reliably. As a growing business, a significant portion of this inventory reflects anticipated future sales. When growth eventually slows, working capital requirements are also expected to decrease, allowing the company to carry lower inventory levels.
M&A
Another way to complement growth is M&A, which generally brings substantial synergies to the company due to its business model.
Cost Synergies: Since Warpaint is not the manufacturer, when it acquires a company, it can usually eliminate redundant administrative and logistics costs and save on logistics costs.
Growth Opportunities: Given its relationship with large clients, it has cross-selling opportunities.
Long-Term Margin Improvement: Over the long term, it achieves an improvement in margins through better supplier pricing, as generating more sales volume allows suppliers to offer more attractive prices. This can be seen in the constant evolution of the company’s gross margin as revenues have increased.
A Little Bit of History
Sam Bazini and Eoin Macleod founded the business in 1992 and continue to run the company as today. The company initially focused on close-out until the launch of W7 in 2002. W7’s revenue surpassed the close-out business in 2013.
The company completed its IPO in 2016 to fund growth. Strategic expansion began in 2017 with the acquisition of Retra Holdings, adding Technic, Body Collection, and Man’s Stuff. In 2018, Warpaint acquired LMS, its distributor in USA.
In 2019, Direct-to-Consumer sales. With COVID-19 in 2020, the focus shifted online, launching Amazon FBA in the UK and USA, and secured product listings in Tesco stores.
From 2020 to 2024, the company gained many important customers. In 2020, they began selling W7 in Tesco stores. After a trial period, W7 was present in 1,400 Tesco stores in 2021. In 2021, W7 also rolled out to over 1,200 Five Below stores in the US. W7 launched in 80 Boots stores in 2022 and expanded to an additional 100 by 2024. In 2022, they also launched W7 in CVS, adding 378 more CVS stores by 2024. After a trial in 20 New Look stores in 2023, they expanded to an additional 200 stores. In 2024, the company launched the Technic range in 202 Morrison stores and began selling in Walmart.
In 2025 Warpaint acquired Brand Architekts.
Looking at the evolution of the business, we can see its ability to expand with current customers. Given that it can triple the number of stores with its existing customer base, its potential for organic growth is significant.
The industry
Warpaint operates within the global cosmetics and personal care industry, with a strong focus on color cosmetics. The industry benefits from relatively resilient demand, though it does exhibit some cyclicality. This means that during economic downturns, demand might soften slightly but typically holds up without sharp declines. This is often attributed to the famous “lipstick effect” theory, where some consumers replace large purchases with small luxuries, such as a new lipstick, helping to maintain some demand during negative cycles. This effect primarily benefits the Mass Market and Value segments. We could say that cosmetics are less cyclical than products like fashion, but they are certainly more discretionary than fully defensive essential goods, like groceries.
While not a high-growth sector, the industry is experiencing healthy growth, driven by factors such as rising disposable income and urbanization, particularly in Asia and emerging markets (where Warpaint is looking to expand in China). The growing influence of Social Media also acts as a key driver and is Warpaint’s main marketing channel.
Various reports show slightly different growth ranges, but we can collectively reference a projected CAGR of between 5% and 7.5% through 2030.
https://www.imarcgroup.com/color-cosmetics-market
https://www.grandviewresearch.com/industry-analysis/color-cosmetics-market
https://www.fortunebusinessinsights.com/press-release/global-colour-cosmetics-market-10441
The cosmetics industry is characterised by very high gross margins, which vary depending on the specific market segment. This is because production costs are usually low, and factors such as branding, marketing and design play a fundamental role in the price.
We can segment the market into Luxury/Prestige and Mass Market, with several sub-segments within the Mass Market category:
Luxury / Prestige: E.g., The Estée Lauder Companies (EL), with gross margins typically ranging from 70% to 80%.
Traditional Mass Market: E.g., L’Oréal, with gross margins of 70% to 74%. These are high-volume, mass-sale products.
Value / Masstige: These brands offer perceived quality and branding that mimics luxury (Masstige) but at low price points (Value). E.g., e.l.f. Beauty. Gross margins here range from 60% to 70%. Warpaint itself positions its W7 brand as Masstige. Despite operating in the same segments, Warpaint’s gross margins are significantly lower than e.l.f. Beauty’s, although they are improving at a good pace. This discrepancy could be due to the fact that Warpaint leans more toward the value end than the masstige end. However, scale is also a major factor, as e.l.f. Beauty’s sales are ten times higher than Warpaint’s. e.l.f. Beauty’s high margin suggests that Warpaint still has significant room for margin expansion.
Private Label: For this segment, I understand the gross margin for the retailer is high, but I couldn’t find a detailed breakdown of the manufacturer’s gross margin.
Industy moat
The cosmetics industry is highly competitive and characterized by a relatively low barrier to entry for new product creation, especially in the digital age. Consequently, durable competitive advantages are relatively few and primarily concentrated among large, established players. Success hinges almost entirely on intangible assets (brand/marketing) and scale (cost/distribution).
Management and Ownership
Warpaint’s leadership structure is highly aligned with its shareholders, as the key members of management are also the founders and largest shareholders. Both founders hold an identical stake of 19.8% of the shares. Both have an interesting history of entrepreneurship.
Sam Bazini, Chief Executive Officer
Leaving school at 16, he started working in a cosmetics warehouse while simultaneously selling directly to the public. This provided invaluable, ground-level insight into consumer needs. At 18, using £500 in savings, he set up his own close-out business. Sam and Eoin Macleod’s (the other founder) paths intersected repeatedly over the following years, working on various joint ventures until they formally established their business partnership in 1992.
Eoin Macleod, Managing Director
Eoin Macleod’s introduction to the beauty world also started young. At age 14, he took a Saturday job selling cosmetics and perfumes at an indoor market. After college, Eoin decided to launch his own entrepreneurial venture, selling fragrances directly to the public through London Street markets. He also built up a presence in the wholesale sector, eventually expanding his business to include cosmetics.
📈 Financials
Revenue
The company’s growth has been exceptional, with revenues increasing sixfold over the past nine years and only one year of decline during the pandemic. Most of this expansion has been organic, acquisitions only made a meaningful contribution in 2016 and 2017. Revenues have grown organically at a CAGR of 17.8%.
In H1 FY2025, total sales grew 7.6%, including the Brand Architekts acquisition, while organic revenue fell roughly 6% amid a broader retail slowdown. With the beauty market expected to expand 5–7.5% annually through 2030 and potential to triple its points of sale with existing customers, growth should re-accelerate once macro conditions improve. The recent addition of Walmart as a client reinforces that view. FY2025 revenue guidance of £107–112 million implies 5–10% revenue growth.
Margins:
The trajectory of the gross margin shows a notable contraction between 2018 and 2020, and a robust recovery and expansion starting in 2021.
Margins were stable in 2016 and 2017 but began to compress in 2018 for several reasons. The “close-out” business accounted for a higher share of sales in 2017—a lower-margin segment—and the brands acquired through Retra Holdings carried thinner margins than W7-branded products. In 2019, the margin was affected by a weaker U.S. dollar and sales from LMS, acquired in 2018.
The drop in 2020 was largely pandemic-driven: management chose to reduce inventory and maximize cash in a period of uncertainty, selling products at discounted prices.
Recovery began in 2021 despite higher freight costs. One key driver was the shift in U.S. strategy—exiting locally sourced close-out brands and focusing on sales of the Group’s own brands.
From 2022 through 2024, margins improved steadily each year as the company successfully passed higher input costs to customers, increased the share of higher-margin own brands, and benefited from scale advantages through larger production orders and better purchasing terms.
In H1 2025, the gross margin rose further to 45%, up from 42.5% in H1 2024, despite weaker organic sales.
Margin expansion has been driven primarily by the rising weight of owned brands. With close-out sales now representing just 2.2% of total revenue (2024), further gains from product mix are likely limited. However, given that larger peers in the industry operate with higher gross margins, additional scale could still provide modest long-term upside. While it’s uncertain how much higher margins can go, the underlying drivers of improvement suggest that current levels are sustainable.
EBIT Margin
The margin has also varied, decreasing from its IPO until a notable recovery in 2023 and 2024. This drop in the EBIT margin above the gross margin was due to extraordinary expenses (or non-recurring charges) between the 2018 and 2020 period, mainly related to the amortization of intangibles derived from the acquisitions made in 2017 and 2018. These costs ended in 2023, which is reflected in the margin increase.
ROIC
The company consistently generates high returns on invested capital, averaging 17%. Between 2017 and 2022, ROIC was temporarily lower, due to both margin pressure and non-cash one-off expenses related to past acquisitions.
For this reason, it’s helpful to look at an adjusted ROIC — excluding goodwill and one-offs — to better understand the company’s underlying return potential, which is meaningfully higher than the reported figure.
Balance Sheet
As of H1 2025, the company had no financial debt and £17 million in cash, reflecting a conservative capital structure and management’s preference to operate with net cash. Free Cash Flow
Despite rapid growth, the company has produced positive free cash flow every year. Meanwhile, net income can be distorted by non-cash items. Adjusted FCF—excluding working-capital swings, share-based compensation, and intangible amortization—provides the clearest picture of true cash generation, aligning with what Warren Buffett calls “owner earnings.”
SWOT analysis
Strengths
Asset-Light Model & high ROIC
Strong balance sheet , 17M of net cash
Proven Retail Roll-Out Strategy
Founder-Led Management and Alignment
Weaknesses
Lower scale than other competitors
Working Capital Intensity. The need to maintain high inventory levels in order to provide customers with fast service.
Customer Concentration Risk: A single European customer (Normal) accounted for over 27% of 2024 revenue.
The poor macroeconomic environment is due to a weak retail sector and low consumer confidence, especially in the UK.
Opportunities
U.S. and China Expansion
The structural growth of the global cosmetics market (5-7.5% CAGR)
M&A for Further Growth
Threats
Risk of increased competition from larger companies.
Supply Chain Disruption. Heavy reliance on Chinese manufacturing exposes the supply chain to geopolitical risks, trade tariffs, and volatility in global freight costs.
Intensifying Private Label Competition: Large mass-market retailers may increasingly prioritize their higher-margin private label beauty brands, potentially limiting future expansion opportunities for external vendors like Warpaint.
🌍 Macroeconomic Context
Before diving into the valuation, I would like to outline the current macroeconomic backdrop.
Persistent inflation and interest rate hikes in recent years have put significant pressure on consumers, leading to reduced discretionary spending in Europe, the United Kingdom, and, to a lesser extent, the United States..
This environment explains why Warpaint is not the only one “suffering.” Recently, e.l.f. Beauty (ELF), which operates in the same value and masstige segment, reported revenue results 6.54% below Wall Street expectations.
While the cosmetics sector is relatively stable, exhibiting solid long-term structural growth (projected at a CAGR of 5% to 7.5%), it has not been immune to the current economic situation. Therefore, this slowdown can be interpreted as temporary and does not fundamentally alter the sector’s long-term growth prospects.
💰 Valuation
I like to approach valuation from three perspectives: 1) valuation vs. peers 2) absolute and historical valuation and 3) discounted cash flow .
1. Valuation vs. Peers
For relative valuation, we utilize a group of comparable companies in the beauty sector, relying on analyst consensus (Data obtained from TIKR).
Despite the comparison being made against companies with much larger market capitalization and scale, the current discount is substantial, exceeding 50% across all metrics used.
This first valuation method comfortably passes the test.
2. Current vs. Historical Valuation
(Data obtained from TIKR)
When comparing Warpaint’s current valuation multiples against its own historical track record, the stock continues to trade at a significant discount.
Even though recent earnings are depressed by the macroeconomic environment, the current discount ranges from 38% to 51%, depending on the metric used. Just like the peer comparison, this second method also passes the test.
3. Discounted Cash Flow (DCF)
The primary objective of this method is not to set a definitive price target for the stock or to perfectly predict estimates, but rather—based on three scenarios I deem conservative—to determine an appropriate entry price for an investor demanding a 15% WACC, which represents my minimum return target.
I urge the reader to use their own estimates.
At current share price of 199 GBX and using a 15% WACC:
Only in our Bear Case scenario would we be overvalued by approximately 10%.
Conversely, in our Base and Bull Case scenarios, the entry price would be adequate.
I want to emphasize that I consider my estimates to be conservative, particularly regarding growth. I have been slightly more optimistic regarding margins (assuming they are maintained without including any improvements over current levels) for the reasons discussed in the Financials section of the thesis. Nevertheless, the high WACC used (15%) also serves as a margin of safety against any errors.
That said, our third valuation method also passes the test, aligning with the previous two.
Conclusion
Warpaint stands out as a quality business with proven growth capabilities, having multiplied its revenues by 6X over the last nine years while consistently generating high Returns on Invested Capital.
The quality of the business is complemented by exceptional Management. Led by its founders, the team has demonstrated highly effective execution while operating conservatively, generally maintaining a net cash position. This ensures a high level of Skin in the Game and strong alignment with shareholders.
The sector in which the company operates is fundamentally resilient (though not immune to cycles) and benefits from assured structural long-term growth. The drop in organic growth is interpreted as a cyclical phenomenon, resulting from the current macroeconomic pressure, particularly in the UK.
For a company of this quality, with a proven double-digit growth track record, a valuation of 10x P/E with net cash (at the current price) is intrinsically highly attractive.
Personally, I do not claim to be smarter than the market, but I do believe the current pricing reflects ashort-term perspective. However, for a value investor with a medium-to-long-term focus, the current share price appears to present a strong investment opportunity.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. I may hold a long position in Warpaint London; please conduct your own due diligence.
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Great pick. I’m curious—what does the lifecycle of a small player in this space usually look like, and what are the main things that can wipe out a brand?
Why did they issue 20m pounds of stock this year?