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Ulta Beauty Reports Decline in Second-Quarter Performance, Adjusts Future Guidance
Ulta Beauty experienced a 7% drop in shares during after-hours trading on Thursday, attributed to disappointing second-quarter results that fell short of market expectations and a revised outlook for the full year. The retailer reported a decline in same-store sales for the quarter, marking a significant shift from previous performance metrics.
This dip represents the company’s first earnings per share miss since May 2020 and its first revenue miss since December 2020. Ulta’s comparable sales for the second quarter declined by 1.2%, a stark contrast to the 8% increase seen in the same period the previous year and below the anticipated 1.2% growth forecasted by Wall Street analysts.
In a press release, CEO Dave Kimbell expressed that while there are encouraging signs in many areas of the business, the second-quarter performance did not align with expectations. He identified a primary factor contributing to this downturn as a decrease in comparable store sales. Kimbell emphasized that the company is aware of the elements affecting store performance and is taking steps to address these issues.
During the subsequent earnings call, Kimbell highlighted four main reasons for the declining sales figures: an unexpected operational disruption caused by changes in store systems, ineffective promotional strategies, changing consumer spending behaviors, and intensified competition in the beauty sector. Kimbell noted that although Ulta retained its share of the mass beauty market, it faced challenges in the prestige beauty realm, particularly in the makeup and hair categories, as indicated by data from Circana.
Typically, retail stores may suffer temporary sales reductions due to new competitor openings or cannibalization from their own new locations. However, Kimbell pointed out that the current scale and speed of these competitive shifts are unprecedented, with around 80% of stores feeling their impact.
Despite these difficulties, Kimbell expressed optimism, acknowledging positive signs within the overall business structure, including guest engagement and the success of new store launches and the salon sector. “The factors that we are observing give us confidence in the resilience and potential of our business,” he stated.
Regarding future forecasts, Ulta has downgraded its projection for full-year same-store sales to a range of flat to a 2% decline, down from an earlier expectation of 2% to 3% growth. CFO Paula Oyibo explained that the revised sales outlook takes into account the anticipated time required for corrective actions to produce positive outcomes, alongside ongoing pressure from competitive market entries.
Additionally, Ulta adjusted its full-year revenue expectations to between $11 billion and $11.2 billion, down from $11.5 billion to $11.6 billion, and indicated earnings per share could range from $22.60 to $23.50, revising earlier estimates of $25.20 to $26.
In the recently concluded quarter ending August 3, the beauty retailer’s performance contrasted with Wall Street predictions based on analyst surveys by LSEG:
Earnings per share: $5.30 vs. $5.46 expected
Revenue: $2.55 billion vs. $2.61 billion expected
This quarter, Ulta reported a net income of $252.6 million, or $5.30 per share, down from $300.1 million, or $6.02 per share, from the previous year. Revenue increased slightly to $2.55 billion from $2.53 billion.
A few weeks ago, Warren Buffett’s Berkshire Hathaway revealed a $266 million investment in Ulta Beauty, prompting a spike in the retailer’s stock. Some analysts viewed this as a sign that the stock was undervalued, particularly after a 32% decrease in 2024, with a notable 26% decline occurring in the second quarter.
The downward trend in Ulta shares began after Kimbell hinted at a slowdown in beauty demand during an investor conference in April. He remarked that the downturn arrived sooner and more intensely than initially anticipated.
During the first-quarter earnings call in May, Kimbell outlined strategic initiatives aimed at enhancing sales in five critical areas: product assortment, brand social relevance, improving the consumer digital experience, strengthening the loyalty program, and refining promotional strategies. Furthermore, he mentioned plans for an expanded collaboration with DoorDash for delivery, testing gamification techniques, and implementing new marketing technologies to customize the shopping journey for customers.
In the latest update, Kimbell noted additional opportunities for the company’s turnaround strategy, including relaunching Ulta’s own beauty line and offering tailored product suggestions to online customers. There is also an emphasis on increasing the value of the rewards program through exclusive events and tiered member benefits.
Clarification: This article has been updated to specify that Ulta Beauty has forecast full-year earnings per share between $22.60 and $23.50, down from a previous forecast range of $25.20 to $26.
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