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What makes Ulta Beauty stand out?
Ulta Beauty (ULTA) is an American cosmetics retail chain based in Illinois. The company operated 1,395 stores at the end of its first fiscal quarter ended May 4.
Ulta has a broader assortment than its high-end competitor Sephora, offering more budget-friendly brands and a wider range of categories, including nail polish and men’s products. Sephora is a French cosmetics retailer owned by luxury giant LVMH.
“I found brands like Essence and Elf (at Ulta) that offer makeup at drugstore prices. This showed me that Ulta’s assortment, from luxury to low-end, really has something for every age and income,” freelancer Jennifer Ortakales Dawkins told Business Insider, adding that Sephora “has a limited number of brands and the prices tend to be higher.”
Morningstar analyst David Swartz highlighted Ulta’s brand strength as a “moat” for the company.
“We believe Ulta Beauty’s brand strength provides a narrow moat and has enabled the company to thrive despite economic conditions and other external challenges,” Swartz said in April. He told investors that Ulta’s key advantage is its large, loyal customer base and scale, making the company an attractive partner for beauty brands.
Ulta Beauty reported positive financial results for the first quarter of 2024. The company earned $6.47 per share for the three months ended May 4, beating the $6.24 expected by analysts. Revenue of $2.73 billion rose 3.5%, beating the $2.72 billion expected.
Comparable sales growth in the first quarter was 1.6%, down from 9.3% in the previous year.
The company has revised downward its forecast for revenue and comparable sales growth for the full year.
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The company now expects fiscal 2024 net sales to be in the range of $11.5 billion to $11.6 billion, down from the previous guidance of $11.7 billion to $11.8 billion. Comparable sales are expected to increase 2% to 3%, below the previous estimate of 4% to 5%.
Ulta is expected to release its second-quarter results on August 29.
Analysts lower price target for Ulta Beauty shares ahead of earnings announcement
Despite Ulta’s above-average first-quarter earnings and its recent acquisition by Berkshire Hathaway, three analysts have cut their price targets on the company ahead of its upcoming earnings report.
Evercore ISI lowered Ulta’s price target from $500 to $430 on August 26 and maintained an “outperform” rating. The analyst also removed Ulta from its “Top 5 Outperformers” list, citing “continued category weakness, tough competitive dynamics and the stock’s recent run-up.”
Evercore ISI reduced Ulta’s second quarter EPS estimate to $5.43 from $5.60 and lowered its fiscal 2024 estimate by 4%, from $26.00 to $24.50.
Citi analyst Kelly Crago reduced Ulta’s price target from $400 to $375, but maintained a neutral rating. The analyst also expected a second-quarter earnings miss due to “weaker comparables and a lower gross margin.”
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“Ulta is facing headwinds from weakening category trends and increasing competition that will make it difficult to drive traffic this year,” the analyst told investors in a research note.
Baird also cut Ulta’s price target to $485 from $525 and gave an “outperform” rating. The analyst lowered estimates for the second half of 2024 to reflect lower confidence in comparable sales growth.
Ulta Beauty stock traded at around $375 on August 26.
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