The end of Ulta Beauty’s (ULTA) glow-up may be near.
After the market closed on Thursday, the beauty retailer reported second-quarter results that generally fell short of expectations. Revenue came in at $2.55 billion, below the $2.62 billion estimate, and earnings per share of $5.30 also fell short of the $5.50 estimate.
CEO Dave Kimbell acknowledged the disappointing results during the earnings call.
“I do not believe these results reflect the strong commitment to our brands, the strength of our business model or the performance I believe we can achieve over the long term,” he said.
He outlined several factors weighing on Ulta, including a normalization of demand after the pandemic, increased cost consciousness among consumers and a shifting market.
“The number of places where you can purchase cosmetics, particularly luxury cosmetics, has increased significantly, with more than 1,000 new points of sale opening in the past three years. As a result, our market share continues to be threatened, especially in the luxury cosmetics category,” Kimbell said.
Same-store sales are expected to decline 1.2% year over year, compared with expected increases of 8% and 14.4% in 2023 and 2022, respectively. Ulta now expects same-store sales to decline 2% to 0% in fiscal 2024, lower than its previous outlook of growth of 2% to 3%. The company now expects sales to be between $11 billion and $11.2 billion, lower than its previous range of $11.5 billion to $11.6 billion.
Kimbell said the team is “taking aggressive action” in five areas: strengthening product assortment, expanding social relevance with influencers and creators, improving digital experiences, leveraging loyalty programs and increasing promotional activity.
The stock was down 7% in after-hours trading. Its shares have fallen about 25% since the beginning of the year and more than 30% in the past six months.
Analysts are concerned by the results, as consumers are becoming more cautious with their spending, competition is increasing and retail theft remains a problem.
“We believe beauty demand could be pressured in 2024 as two years of rising interest rates remain a strain on consumer budgets, leading consumers to lean more toward shopping for refills, purchasing innovation-led solutions and taking advantage of consumer rewards,” CFRA analyst Ana Garcia wrote in a client note.
Before the earnings release, UBS analyst Michael Lasser expected Ulta Beauty to again cut its 2024 earnings outlook. But “Ulta shares still are pricing in excessive negativity about the business’s long-term growth and margin prospects,” he said.
“We don’t believe Ulta’s business model is broken or structurally disadvantaged,” he added, but rather the company is “digesting several years of significant category growth and increased competition, including online players like Amazon and TikTok Shop.”
be A report from pedestrian analysis platform Placer.ai, Ulta Beauty is still seeing a significant increase in store traffic compared to other companies in the beauty and wellness industry.
Berkshire Hathaway (BRK-A, BRK-B) disclosed in a regulatory filing on Aug. 14 that it purchased 690,106 shares of Alta during the second quarter, worth roughly $266 million as of the end of June, as reported by Edwin Roman of Yahoo Finance.
At the time, Simeon Siegel, managing director at BMO Capital Markets, told Yahoo Finance that the move marked a “huge endorsement of Ulta Beauty.”
Ulta shares have risen more than 50% over the past five years, benefiting from a post-COVID beauty and wellness boom, but they have underperformed compared with the broader market, which is up more than 90% in the same period.
Revenue Breakdown
Below is Ulta Beauty’s second-quarter report, compared to Wall Street expectations, based on Bloomberg consensus.
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Revenue: $2.55 billion vs. $2.62 billion
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Adjusted earnings per share: From $5.30 to $5.49
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Same-store sales growth: -1.2% compared to +1.32%
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter.Brooke DiPalma Or email me at bdipalma@yahoofinance.com
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