Investors expect continued profit slowdown in Ulta Beauty’s upcoming earnings report in line with wider beauty industry troubles this year.
Analysts surveyed by Bloomberg forecast an average third quarter profit of around $212.4 million against a $2.4 billion revenue, down nearly 15% from a $249.48 million profit in the third quarter of the previous year. Earnings per share on average are estimated to be around $4.51; last year, it was $5.09.
“There’s a lot of question marks out there,” said Edward Jones analyst Brian Yarbrough in an interview. “It’s been kind of a rough story for over the past 12, 18 months.”
Ulta’s tepid earnings come amid a slowdown in beauty profits owing to macroeconomic factors like inflation, as well as increased competition in the beauty space from LVMH-owned competitor Sephora. Consumers are prioritizing essential goods like rent and food over discretionary items like cosmetics, which Ulta primarily sells.
Ulta is coming off a less-than rosy report – the company missed expectations for its second quarter, announcing in August earnings of around $252.6 million on a revenue of $2.55 billion, with earnings per share at $5.30. Analysts had expected $2.61 billion in revenue, around $260.2 million in earnings and $5.46 per share.
Its comparable sales were down 1.2% compared to an 8% increase in the same quarter of the previous fiscal year.
“Outside of the pandemic, period, this is pretty much the first time in a long time that Ulta’s had negative comp sales,” said Morningstar analyst David Swartz. “That’s unusual for Ulta.”
The company has since lowered its earnings guidance for the year. It expects to make between $11 and $11.2 billion in revenue, with annual diluted earnings per share around $22.60 to $23.35.
“They lowered the bar to probably more realistic type margins and earnings growth,” said Yarbrough in a previous interview.
Increased competition has also been an issue for the beauty retailer this year.
LVMH, which released its quarterly earnings report last month, saw sales for its perfume category slow to a 3 percent growth compared to 9 percent last year in its third quarter. Back in 2020, Sephora announced a store-in-store partnership with department store Kohl’s. Sales for Sephora at Kohl’s hit over $1.4 billion in 2023, and is expected to reach $2 billion this year, according to Kohl’s. The number of Sephora at Kohl’s locations is also projected to reach over 1000 before the year’s end.
While Ulta has seen some short-term impact from competition opening near its locations in the past, the “scale and pace of change” has made the impact difficult to predict, said CEO David Kimbell on the second quarter earnings call.
“We know we’re still in the midst of this,” said Kimbell on the call. “We know it will take time, but we are not sitting still.”
Consumer confidence and increased competition have affected investor faith in the stock, which has declined nearly 22 percent this year while the S&P 500 and its consumer discretionary index have soared around 25 percent.
Investors will likely not react dramatically to Ulta’s third quarter, says Swartz.
“I don’t think it’s going to be a big surprise,” said Swartz. “People kind of expect that this year is not going to be a great year.”
But not all is lost. As the beauty category continues to grow despite the industry slowdown, Swartz expects Ulta to find its footing going forward thanks to its large loyalty program, strong e-commerce platforms and international expansion plan.
“Ulta has a lot of strengths,” Swartz said.