Citi adjusted its outlook on ULTA Beauty (NASDAQ: ULTA), reducing the stock's price target to $345 from the previous $375. The firm sustained a Neutral rating on the shares, despite acknowledging the difficulties the company faces following its second-quarter performance and the revision of its fiscal year 2024 (F24) guidance.
ULTA Beauty's second-quarter results fell short of consensus expectations, with comparable sales down by 1.2%, contrasting with the anticipated increase of 1.2%. The company experienced weaker gross margins due to a challenging retail environment marked by softening category trends and heightened competition.
ULTA's promotional activities intensified towards the end of the quarter, but this strategy did not lead to an improvement in sales.
As a consequence, the management revised its F24 comparable sales and earnings per share (EPS) guidance downwards. The new forecast suggests an EBIT margin ranging between 12.7% and 13.0%, a decrease from the previous estimate of 13.7% to 14.0% and below the fiscal year 2023 (F23) margin of 15.0%.
The updated guidance also indicates that comparable sales for the second half of the year could range from flat to a decline of up to 4%, with current third-quarter-to-date comparable sales at -1.0%.
Citi's analysis suggests that the revised guidance for the second half of the year appears to be on the conservative side. However, the firm remains cautious about ULTA's fiscal year 2025 (F25) outlook, which is expected to be shared during ULTA's investor day on October 16, 2024.
The company may need to increase investments in promotions, marketing, and foundational improvements to stimulate top-line growth. Citi's fiscal year 2025 earnings estimate of $20.75 implies an EBIT margin of around 11.0%.
The ongoing 90-day negative catalyst watch for ULTA Beauty remains in effect, as Citi continues to monitor the company's performance and potential headwinds.
In other recent news, ULTA Beauty has experienced a series of revisions in stock outlook by various analyst firms following its second-quarter earnings report. The company's earnings per share (EPS) of $5.30 did not meet the anticipated Street forecast of $5.47, reflecting weaker sales and profit margins than predicted. Consequently, ULTA's management revised its full-year EPS guidance for fiscal year 2024 to a range of $22.60 to $23.50, which falls short of the Street's expectation of $25.25.
Investment firm Oppenheimer adjusted its price target for ULTA Beauty, reducing it to $435 from the previous $450, while maintaining an Outperform rating on the stock.
Other firms such as TD Cowen, Stifel, Piper Sandler, and BMO Capital also lowered their price targets but maintained various ratings on the stock.
In terms of financial performance, ULTA Beauty reported a modest Q2 net sales growth of 0.9% to $2.6 billion but experienced a 1.2% decline in comparable store sales. Despite these challenges, ULTA demonstrated resilience by opening 17 new stores during the quarter.
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