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Can Ulta Beauty Deliver Strong Results in Fiscal 3Q17?

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Upcoming 3Q17 results

Ulta Beauty (ULTA) is scheduled to announce its fiscal 3Q17 results after the close of financial markets on November 30. Despite exceeding analysts’ expectations in the first two quarters of fiscal 2017, the company’s stock has fallen 17.5% as of November 24 since the start of 2017. On a year-to-date basis, Ulta Beauty lags the S&P 500 Index, which has risen 16.2%.

Stock in the red

On August 25, Ulta Beauty’s stock fell 9.1% in reaction to the company’s fiscal 2Q17 results, which were announced after the close of financial markets on August 24. Ulta Beauty’s fiscal 2Q17 results surpassed analysts’ expectations. However, slower-than-expected same-store sales growth disappointed investors. Ulta Beauty’s stock took another hit on October 12 when it fell 8.5% as Cleveland Research cut its rating to “neutral” from “buy.”

On October 18, Ulta Beauty stock fell 1.9% as Piper Jaffray downgraded the beauty retailer’s stock from “overweight” to “neutral.” Piper Jaffray also lowered its target price for Ulta Beauty stock to $210.00 from $260.00. The downgrade reflected the results of a survey that showed that there was a slowdown in spending by teenagers on beauty products.

Also, the competition in the beauty business is intensifying, which is expected to impact Ulta Beauty’s top-line growth. Department stores like Macy’s (M) and JCPenney (JCP) are focusing on their beauty business. Macy’s continues to emphasize its Bluemercury business, and JCPenney’s Sephora stores are emerging as key growth drivers.

Analysts’ recommendations

As of November 24, Ulta Beauty stock was rated a “hold” by 52% or 13 out of 25 analysts covering the stock. The stock was rated “buy” by 12 analysts. None of the analysts recommended a “sell” rating for Ulta Beauty stock.

As of November 24, the 12-month price target for Ulta Beauty stock was $261.60. This average price target reflects an upside potential of 24.4%.

Series overview

This series on Ulta Beauty’s fiscal 3Q17 results will discuss expectations for the company’s sales, earnings, and margins. We’ll also look at the company’s valuation multiple.

We’ll discuss the company’s sales in detail in the next part of this series.

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