On Friday, Citi adjusted its outlook on ULTA Salon (NASDAQ: ULTA), reducing the stock's price target to $400 from the previous $485. The firm sustained a Neutral rating on the shares.
The adjustment follows the anticipation of a first-quarter earnings per share (EPS) shortfall, with projections of $6.22 versus the consensus of $6.42. This expectation is attributed to weaker comparable sales growth, which is estimated at +1% compared to the consensus of +2.7%.
ULTA Salon's management, during a recent competitor conference, highlighted a slowdown in category growth that was swifter than expected. They also indicated that first-quarter comparable sales would likely be at the lower end of their previously guided low single-digit range for the first half of the year.
While management initially reaffirmed their full-year 2024 guidance, current industry data suggests ongoing weak trends into the second quarter, which may lead to a more cautious stance on future guidance.
The increased competition in the market has raised concerns that ULTA may need to ramp up investments in promotions and marketing to retain its market share.
Citi has revised its full-year 2024 earnings forecast for ULTA Salon from $26.89 to $25.52, factoring in the weaker comparable sales growth expectations of +2% versus the prior estimate of +4%.
Given the stock's 27% decline since the fourth-quarter earnings report, Citi believes that the market has already factored in the potential for a first-quarter miss and a guidance reduction. This suggests a balanced risk/reward scenario for ULTA Salon's shares moving forward.
InvestingPro Insights
In light of Citi's revised outlook on ULTA Salon, current InvestingPro data provides a broader perspective on the company's financial health and market position. With a market capitalization of $18.03 billion and a P/E ratio standing at 14.39, ULTA shows a strong market presence. Despite recent price drops, the company's management has been confidently buying back shares, as indicated by one of the InvestingPro Tips, which could be a sign of underlying value as perceived by ULTA's leadership.
The company's fundamentals remain robust, with liquid assets surpassing short-term obligations and a moderate level of debt, which are positive indicators of financial stability. Additionally, ULTA has been profitable over the last twelve months with an operating income margin of 14.97%. While the stock is trading at a high price-to-book multiple of 7.91, analysts predict profitability for the year, and the company has a history of high returns over the last decade, according to further InvestingPro Tips.
For investors considering ULTA Salon, it is noteworthy that the stock is currently trading near its 52-week low and has experienced a significant price fall over the last three months. This could present a potential buying opportunity, especially as the RSI suggests the stock is in oversold territory. For deeper insights and additional analysis, there are 12 more InvestingPro Tips available for ULTA Salon at https://www.investing.com/pro/ULTA. Investors can also take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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