What Ulta Beauty Investors Should Watch in Its Q1 Results

Ulta Beauty (NASDAQ:ULTA) is among the many retailers that have suffered amid the COVID-19 pandemic. The beauty retailer closed its stores on March 19 when the COVID-19 outbreak intensified in the country. The company continued to sell its products through digital channels. Notably, the company will likely declare its first-quarter results after the financial markets close on May 28.

Earlier this month, the retailer started reopening select stores throughout Arkansas, Nebraska, Oklahoma, South Dakota, Tennessee, Texas, and Utah. Many of the stores started offering hair services with the required safety measures in place.

COVID-19 hit Ulta Beauty’s Q1 sales

Ulta Beauty derives a significant portion of its sales from its physical stores. As at the end of fiscal 2019, the company operated 1,254 retail stores in 50 states. Ulta Beauty’s stores attract huge traffic due to the extensive range of products offered across several brands. The salon services offered at the stores also help drive additional traffic. Temporarily closing the stores hurt the company’s top line significantly.

Analysts expect Ulta Beauty’s first-quarter sales to decline 31.2% YoY (year-over-year) to $1.2 billion. The company’s digital sales during the pandemic wouldn’t be enough to offset the loss of sales from its stores amid COVID-19. Meanwhile, Ulta Beauty took various initiatives to boost its e-commerce sales during the pandemic. The company offered curbside pick-up services at several stores. Even before the COVID-19 outbreak, Ulta Beauty made investments to strengthen its e-commerce business. In fiscal 2019, the company’s e-commerce sales grew above 30%.

Analysts expect the company’s adjusted EPS to decline to $0.48 in the first quarter of fiscal 2020 from $3.26 in the first quarter of fiscal 2019.

Analysts’ ratings ahead of the Q1 results

Most of the analysts are optimistic about Ulta Beauty’s long-term growth prospects. Currently, none of the analysts have a “sell” recommendation. Meanwhile, 17 analysts recommend a “buy,” while ten recommend a “hold.” As of May 26, Ulta Beauty stock was down 6% compared to the 7.4% and 12.4% fall in the S&P 500 and the Dow Jones.

The company’s strong store network and attractive product offerings helped it thrive despite competition from online giants like Amazon. However, persistent weakness in the make-up category has been a concern.

The company should benefit from the bankruptcies of retailers like JCPenney. Notably, JCPenney competes with Ulta Beauty through its Sephora in-stores. During tomorrow’s conference call, investors will want to know how reopened stores have performed.