Ulta Beauty (ULTA) may be facing the end of its glory days.
On Thursday, after the market closed, the beauty retailer reported second-quarter results that missed estimates across the board. Revenue came in at $2.55 billion, below estimates of $2.62 billion. Earnings per share of $5.30 also fell short of expectations of $5.50.
CEO Dave Kimbell acknowledged the disappointing results on the earnings call.
"We do not believe these results reflect the strong engagement with our brands, the strength of our operating model, or the performance I know we can achieve over the long term," he said.
He outlined several factors weighing on Ulta, including post-pandemic demand normalization, a more value-conscious consumer, and changes in the marketplace.
"There are more places to buy beauty products, especially luxury beauty products, with over 1,000 new distribution points opened in the past three years. As a result, our market share continues to be challenged, particularly in the luxury beauty category," Kimbell said.
Same-store sales fell 1.2% year-over-year, in stark contrast to the 8% and 14.4% increases seen in 2023 and 2022, respectively. Ulta now projects same-store sales to decline 2% to 0% for fiscal 2024, compared with its previous guidance of a 2%-3% increase. It forecast revenue of $11.0 billion to $11.2 billion, down from its previous forecast of $11.5 billion to $11.6 billion.
Kimbell said his team is taking “aggressive action” in five areas: strengthening product assortment, expanding social relevance using influencers and creators, enhancing digital experiences, leveraging loyalty programs and increasing promotional activity.
Ulta shares fell 7% in after-hours trading. The stock has fallen about 25% since the start of the year and more than 30% in the past six months.
Analysts are concerned about the results as consumers become more cautious about spending while competition increases and retail theft remains a problem.
"We think beauty demand may come under pressure in 2024 as consumer budgets remain tight after two years of record highs. We think consumers will be more likely to spend while restocking, seek innovative solutions and leverage consumer rewards programs," CFRA analyst Ana Garcia wrote in a note to clients.
Ahead of the results, UBS analyst Michael Lasser had predicted that Ulta Beauty would again lower its 2024 guidance. However, "ULTA's stock still includes too much negativity about the long-term growth and margin outlook for the business," he said.
Analysts are concerned about the results as consumers are becoming more cautious about spending while competition is increasing and retail theft remains a problem.
"We think beauty demand may come under pressure in 2024 as consumer budgets remain tight after two years of record highs. We think consumers will be more likely to spend while restocking, seek innovative solutions and leverage consumer rewards programs," CFRA analyst Ana Garcia wrote in a note to clients.
Before these results came out, UBS analyst Michael Lasser had predicted that Ulta Beauty would again lower its guidance for 2024. However, “ULTA stock still includes too much negativity about the long-term growth and margin prospects for the business,” he said.
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