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Ulta Beauty Drops 3.5% On 4Q Outlook As Covid-19 Hits Sales
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Ulta Beauty Drops 3.5% On 4Q Outlook As Covid-19 Hits Sales

Ulta Beauty missed analysts’ sales expectations for the third quarter of fiscal 2020 (ended Oct. 31) and issued a weak fourth-quarter outlook as the coronavirus pandemic continues to hurt the cosmetics retailer’s operations. Shares declined 3.5% on Dec. 4.

The company’s 3Q net sales fell 7.8% year-over-year to $1.55 billion with comparable sales down 8.9%. Analysts expected sales of $1.56 billion. Meanwhile, Ulta Beauty’s (ULTA) 3Q adjusted EPS of $1.64 exceeded analysts’ estimates of $1.49 but declined 26.5% year-over-year. Earnings were dragged down by lower sales, an unfavorable channel mix, higher corporate overhead expenses and COVID-related expenses.

Speaking about 4Q, CEO Mary Dillon stated, “Ulta Beauty is well positioned for this gift giving season as consumers continue to seek moments of joy, connection and self-care, and we are encouraged with early holiday sales trends in November. However, the operating environment continues to be dynamic. While it is difficult to predict future impacts of the pandemic on demand this holiday season, we have increased our sales expectations for the fourth quarter and now anticipate comparable store sales will decline in the range of 12% to 14%.”

Looking ahead, Ulta Beauty expects to open about 30 new stores and relocate 5 stores in fiscal 2020. It continues to expect to open at least 30 new stores in fiscal 2021, though the company stated that the store opening plan has not been finalized. The company also intends to resume its share repurchase program in the fiscal fourth quarter following its suspension earlier this year. (See ULTA stock analysis on TipRanks)

Following the 3Q results, Raymond James analyst Joseph Altobello reiterated a Hold rating on Ulta Beauty and stated that while still very much pressured by the pandemic, the company nonetheless delivered meaningful sequential improvement. “However, the company anticipates comp declines to accelerate in F4Q though reflecting a healthy dose of uncertainty,” Altobello noted.

“While Ulta’s business model remains solid, liquidity is not an issue and the recent Target partnership should increase brand recognition, our neutral stance on the stock stems from a distinct lack of visibility into the return of consumers to pre-pandemic shopping habits, particularly as we move into the critical holiday season, as well as continued sluggish trends in the U.S. makeup category,” the analyst summed up.

Overall, the Street has a Moderate Buy analyst consensus for Ulta Beauty based on 12 Buys versus 8 Holds. The average price target stands at $297.44, implying upside potential of 6.4% from current levels.

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