On Friday, Stifel adjusted its stance on ULTA Beauty (NASDAQ: ULTA) shares, reducing the price target to $385 from the previous $475, while keeping a Hold rating on the stock. This adjustment comes in the wake of ULTA Beauty's second-quarter fiscal year 2024 earnings, which fell short of market expectations.
ULTA Beauty reported a lower-than-anticipated EBIT for the second quarter at $329 million, missing the consensus estimate of $344 million. This shortfall was attributed to a weaker comparable store sales (comp) figure, which decreased by 1.2% compared to the expected increase of 1.4%. Additionally, the company experienced a lower gross margin of 38.3%, which was below the consensus of 38.8%, and faced selling, general, and administrative (SG&A) expense deleverage due to increased investments and softer sales.
The company also revised its full-year guidance, indicating a decrease in comparable store sales ranging from 2% down to flat, a significant adjustment from the previously forecasted growth of 2% to 3%. Earnings per share (EPS) expectations for the full year were also lowered to a range of $22.60 to $23.50, down from the earlier guidance of $25.20 to $26.00.
ULTA Beauty's recent performance reflects broader challenges within the U.S. beauty industry, particularly in the prestige segments of hair and makeup, where intensified competition and increased promotions have impacted sales trends. The company noted that comparable store sales trends weakened as the second quarter progressed and promotional activities ramped up, indicating ongoing market pressures.
The revised guidance from ULTA Beauty suggests that the company anticipates these challenges to persist into the second half of fiscal year 2024, with the potential for continued market share losses into fiscal year 2025.
In other recent news, ULTA Beauty's earnings and revenue results have been the focus of several analyst firms. The beauty retailer reported modest Q2 net sales growth of 0.9% to $2.6 billion but experienced a 1.2% comparable store sales decline.
Piper Sandler revised ULTA Beauty's price target to $356 from $404, maintaining a neutral rating, due to weaker-than-expected financial results and a subsequent reduction in guidance. BMO Capital and Wells Fargo (NYSE:WFC) also adjusted their targets for ULTA to $385 and $300 respectively, citing the company's revised full-year guidance and weak Q2 results.
Telsey Advisory Group, Canaccord Genuity, and Raymond James also revised their outlooks on ULTA. Telsey lowered its price target to $450, maintaining an Outperform rating, while Canaccord reduced its price target to $442, keeping a Buy rating. Raymond James downgraded the stock from a Strong Buy to an Outperform status, also reducing the price target to $450.
These adjustments reflect ongoing competitive pressures, uncertain economic conditions, and promotional strategies that have not yet yielded the desired effectiveness.
Despite these challenges, ULTA opened 17 new stores during the quarter, demonstrating resilience in a competitive market.
InvestingPro Insights
As ULTA Beauty (NASDAQ: ULTA) navigates a challenging market environment, it's important for investors to consider both the company's recent performance and its financial health. According to InvestingPro, ULTA's management has been proactively engaging in share buybacks, a move that may signal confidence in the company's intrinsic value. This is juxtaposed with the fact that 12 analysts have revised their earnings expectations downwards for the upcoming period, hinting at potential headwinds.
InvestingPro data highlights a mixed financial picture: ULTA is trading at a P/E ratio of 14.36, which is high relative to its near-term earnings growth, with a PEG ratio of 3.29. The company's price to book ratio stands at 7.62, reflecting a premium valuation in the market. Despite these valuations, ULTA remains profitable with a strong return on assets of 22.84% over the last twelve months as of Q1 2025. Additionally, the company's liquid assets exceed its short-term obligations, suggesting financial stability. However, it's worth noting that the stock has experienced a significant decline over the last six months, with a 32.99% drop in price total return.
For investors seeking a deeper dive into ULTA's financials and future outlook, InvestingPro offers a comprehensive set of additional tips, with 10 more insights available that can help in making informed investment decisions.
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