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Why ULTA Beauty Stock Plunged 13% on Friday

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Dec. 10 2018, Updated 8:28 a.m. ET

Q4 outlook pulled down stock

ULTA Beauty (ULTA) stock declined 13.1% on December 7 in reaction to the company’s third-quarter results, which the company declared after financial markets closed on December 6. The third quarter of fiscal 2018 ended on November 3. The company’s third-quarter earnings exceeded analysts’ expectations, while sales were in line with estimates. However, it was the company’s weak guidance for the fourth quarter that caused such a significant drop in the stock price on December 7.

Also, the S&P 500 fell 2.3% on December 7 in reaction to the lower-than-expected numbers in the November jobs report and the ongoing US-China trade tension.

Even after the significant drop on December 7, Ulta Beauty stock is still up 13.8% on a year-to-date basis, ahead of the S&P 500 Index, which is down 1.5%.

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Analysts’ reaction

On December 7, BMO raised its price target for Ulta Beauty stock to $280 from $230. However, J.P. Morgan lowered its price target to $345 from $35. Baird revised its price target to $330 from $320.

As of December 7, Ulta Beauty stock was rated a “buy” by 18 out of 27 analysts covering the retailer. Nine analysts had a “hold” recommendation. None of the analysts had a “sell” rating. The average 12-month price target for Ulta Beauty stock is $322.48, which reflects an upside potential of about 27%.

Ulta Beauty operated 1,163 stores as at the end of the third quarter. The company opened 42 stores during the quarter. It also remodeled four stores and relocated one. Ulta Beauty is on track to open about 100 new stores and remodel or relocate 15 locations in fiscal 2018. The company is moderating its store expansion plans over the next three years when compared to the current fiscal year. Ulta Beauty plans to open 80 stores in fiscal 2019, 75 stores in fiscal 2020, and 70 in fiscal 2021.

Over the long term, Ulta Beauty sees the opportunity to grow its store network to the range of 1,500 to 1,700 locations. In the next part of this series, we’ll analyze Ulta Beauty’s third-quarter earnings and outlook.

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