uploads///Ulta Beauty

What to Expect from Ulta Beauty’s Q4 Earnings


Mar. 10 2020, Published 11:32 a.m. ET

Ulta Beauty (NASDAQ:ULTA) stock fell 6.9% on a YTD (year-to-date) basis as of Monday. The company will likely report its fourth-quarter earnings after the financial markets close on Thursday.

The YTD gain in Ulta Beauty stock as of Sunday was erased by the US stock market crash on Monday. The US and global stock markets fell yesterday due to the oil price war and panic related to the coronavirus outbreak. Ulta Beauty stock fell 8.1% on Monday. Meanwhile, the S&P 500 (NYSEARCA:SPY) and the Dow Jones (NYSEARCA:DIA) fell by 7.6% and 7.8%, respectively, on the same day.

Overall, the S&P 500 has fallen 15% YTD as of Monday, while the Dow Jones has fallen 16.4%.

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Will Ulta Beauty’s Q4 earnings be impressive?

Ulta Beauty delivered mixed results for the third quarter of fiscal 2019. The company’s sales rose 7.9% YoY (year-over-year) to $1.68 billion. Same-store sales growth of 3.2% and sales from new stores drove the top line. Ulta Beauty’s adjusted EPS increased 3.2% to $2.25. The company exceeded Wall Street’s EPS estimate of $2.13 but lagged the sales forecast of $1.69 billion.

In the third quarter, the company’s skincare, bath, and fragrance businesses performed well, while cosmetics sales declined. In general, the makeup category has experienced a slowdown in the US market following several years of strong growth. Ulta Beauty thinks that a lack of innovation and changing consumer trends, like the preference for a more natural look, impact the makeup business.

Analysts expect Ulta Beauty’s fourth-quarter sales to grow 9.4% YoY to $2.32 billion. They also predict a 3.3% rise in the fourth-quarter adjusted EPS to $3.73. Notably, the fourth quarter included the crucial holiday season.

Ulta Beauty has been enhancing its product offerings in its stores and online. The company has been expanding the distribution of popular prestige brands like Clinique, Benefit, MAC, Lancome, and Estée Lauder. To mitigate the slowdown in the mass cosmetics category, Ulta Beauty focuses on growth categories like skincare and hair.

The company boosts the sales of its skincare business through new product introductions, marketing efforts, and skin services. Last year, Ulta Beauty introduced over 30 new brands in the skincare category.

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Analysts’ ratings

Currently, 55% or 16 out of 29 analysts have a “buy” recommendation for Ulta Beauty stock. Meanwhile, 13 analysts have a “hold” rating. The average target price of $285 for the stock indicates an upside potential of about 21% over the next 12 months.

In comparison, analysts have a 12-month average target price of $15.21 for Sally Beauty Holdings (NYSE:SBH) stock. The estimate reflects an upside potential of about 29%. As of Monday, Sally Beauty stock has fallen 35.2% on a YTD basis.

Sally Beauty missed analysts’ expectations for the first quarter of fiscal 2020. The company’s sales declined by 0.9% to $980 million. The adjusted EPS fell 17.5% YoY to $0.47. Sally Beauty cited store closures, a shorter holiday retail season, and technology implementation challenges as the reasons for its dismal performance.

Meanwhile, Ulta Beauty continues to take several measures to fight the intense rivalry in the US retail market. The company’s partnership with Kylie Jenner’s “Kylie Cosmetics” reflects its strategy to attract young shoppers. The company also plans to strengthen its online business. Ulta Beauty completed the roll-out of the buy-online-pickup-in-store facility to all its locations in the second quarter of fiscal 2019. The company predicted e-commerce sales growth of 20%–30% for fiscal 2019.

Ulta Beauty continues to remodel and expand its store network. The company opened 73 stores, remodeled 12 stores, and relocated six stores in the first nine months of fiscal 2019. As of November 2, the company operated 1,241 stores and offered over 25,000 products from about 500 brands.

Ulta Beauty investors will be keen to know the company’s fiscal 2020 outlook amid the challenging retail and macro environment.


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