Ulta Beauty stock braces for quarterly financial results

Ulta Beauty (ULTA) is the biggest beauty specialty store in the United States with over 1,375 stores in all states in the United States. 

Its strategy is to offer the widest range of beauty products in areas like skin care, hair care, cosmetics, fragrance, and bath in one location.

The company has also expanded its business to the e-commerce sector, where its website and applications receive millions of customers each month. Data by SimilarWeb shows that the number of website visitors in its website rose by 3.9% in July to over 32.2 million. 

The share of e-commerce sales has continued growing and now accounts for a substantial part of its business. 

Still, despite of its market share, Ulta Beauty’s stock has not done well in the past few months. After peaking at $574 on March 11 this year, it has moved into a bear market, falling by over 36% to the current $366. 

This decline is because of the ongoing weak consumer spending in the US, rising costs of doing business, especially on wages, and increasing competition from companies like Walmart and Amazon. 

Its challenges are almost similar to those being experienced by companies like CVS Health and Walgreens Boots Alliance, whose shares have plunged this year.

Ulta Beauty stock was trading at $366.82 while its HypeIndex has risen by 232%.

Positive hype

• Ulta Beauty’s hype has jumped because of the stock’s performance as it has soared by over 15% from its lowest point this month. 

• The company will publish its quarterly results on Thursday, August 29, which are expected to show its progress in a difficult environment. 

• Analysts expect its numbers to show that revenues rose to $2.61 billion in the last quarter. Earnings per share is seen coming in at $5.47.

• Its first quarter results showed that its net sales rose by 3.5% in Q1 to $2.7 billion as its comparable store sales rose 1.6%, helped by both volume and unit prices. 

• Ulta Beauty’s stock has also risen after Warren Buffett invested in the company. Buffett, one of the best investors of this generation is highly followed by retail and institutional investors, who often buy companies he is investing in.

• Ulta is a fairly cheap company, trading at 14x forward earnings and 13.3 trailing twelve months free cash flow. The industry median P/E ratio is 17 while the S&P 500 index has a multiple of 21. The average stock target among analysts is $451, higher than the current $366.82.

• The company has a big market share in the specialty beauty industry and has over 43 million loyalty members, up from 34 million in 2019. 

• It also has the widest collection of mass-market and premium beauty products in the industry. 

• Additionally, traffic on its website is rising, signaling that the company is doing well.

Negative hype

• There are signs that consumer spending is slowing after the recent weak earnings by companies like Kohls, Bath & Body Works, and Home Depot. Most of these companies have warned that consumers are not spending as they used to before.

• The company is facing strong competition from newer beauty brands, especially those by celebrities. Some of the most notable ones are Fenty Beauty by Rihanna, Kylie Cosmetics by Kylie Jenner, and Rare Beauty by Selena Gomez.

• Its margins are under pressure because of wage increases in the United States. Wage growth has risen by over 3% monthly, as many progressive states increase their minimum wages. 

• It has had substantial inventory growth, which can be a red flag for a retailer. It ended the last quarter with over $1.9 billion in inventories, higher than the $1.7 billion it had in Q2’23.

Summary of Ulta Beauty stock

Ulta Beauty stock jumped by over 12% earlier this month after Warren Buffett invested in the company. 

It is a fairly cheap company, with a P/E ratio of just 14, and is a well-known brand, especially among women. 

However, technically, the stock remains below the 100-day moving average and is not in a well-defined bullish trend. Therefore, it could have some volatility in the near term and start recovering when interest rates start falling, leading to more consumer spending. 

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