/Ulta Beauty Slides as Forecast Cut Spurs Analysts to Reset Targets

Ulta Beauty Slides as Forecast Cut Spurs Analysts to Reset Targets

Customers view beauty producst displayed for sale at an Ulta Beauty Inc. store in New York.

Photographer: Gabby Jones/Bloomberg

Ulta Beauty Inc. fell the most in almost 12 years after the retailer posted a rare
quarterly earnings miss
and slashed its year profit and net sales targets given weakness in the U.S. cosmetics category.

“To be clear, the second quarter was not our concern but rather what is implied for the company’s second-half trends, which could bleed into the first half of next year,” Piper Jaffray’s Erinn Murphy wrote in a note. She downgraded the shares to neutral from a buy-equivalent rating and dropped her price target to $250 per share from $360. “We are less than one year into Ulta’s Investor Day targets and comps in year one have been revised below that of the long-term plan,” she said.


Read More: Ulta Plunges Most Since 2007 Amid Slowing Growth, Lower Forecast

The disappointing report resulted in four sell-side downgrades so far, and a substantial cut to the average 12-month price target, which now stands at $302 per share from $376 just two days ago, according to data compiled by Bloomberg.

Ulta Beauty shares plunged 27% in New York, erasing what had been an impressive run this year. It was the stock’s biggest intraday decline since December 2007 and could be the worst one-day performance ever if it holds until the close.

Ulta shares erase 2019 gain after forecast spooks investors

Here’s what other Wall Street analysts had to say:

Citi, Beth Kite

Kite downgraded Ulta to neutral from buy and cut her price target to $300 from $390. The stock “will be pressured by the lack of visibility into an improvement in Color Cosmetics trends naer-term,” she wrote. Over the longer term horizon, the company’s target for mid- to high-teens earnings growth is at risk.

Morgan Stanley, Simeon Gutman

Downgraded to equal-weight from overweight and slashed price target to $275 from $395 on view that the second quarter was “thesis changing,” with the growth outlook for the cosmetics half of the business “slowing meaningfully.”

The drivers Gutman saw when he upgraded the stock in January 2018 — longer runway of store growth and room for multiple expansion — “are no longer in place.”

Jefferies, Stephanie Wissink

The operating margin missed the 12.8% estimate by just 50 basis points, but “represents a directional shift, after many years of SG&A growth at/below sales growth, FY19-20 has inverted.”

Comparable sales growth should sequentially accelerate in the fourth quarter, but investors will probably discount this “until signs of demand improvement return.”

Maintains rating at buy, but reduced her price target to $310 from $370 given the sales-rate deceleration and less visibility.

What Bloomberg Intelligence Says:

“Ulta lowered its EPS view by about 750 bps, a surprise despite commentary from Estee Lauder and L’Oreal’s slowing domestic makeup sales, given Ulta had weathered such headwinds before.”
–Analyst Seema Shah
–Click
here
to view note

Telsey Advisory, Dana Telsey

Current innovation headwinds to the cosmetics category have been steeper than expected, overtaking ULTA’s ability to share-gain its way to prior comp expectations.

Product cycles can take several quarters to normalize, and visibility to the overall traffic and promotional environment has also become less clear.

Rates outperform, but cuts target price to $330 per share from $375.

Cowen, Oliver Chen

“It was our hope based on our analysis that Ulta’s share gains would outpace the industry trends and digitally native and new product introductions would offset these pressures, but this did not occur.”

Rates outperform, price target to $313 from $375.

Stifel, Christopher Growe

Ulta’s “meaningful change in outlook” suggests slowing share gains and risk to long-term expectations for comparable-sales growth and operating margin leverage.

In addition, it will be difficult to achieve stronger sequential same-store sales growth in the fourth quarter and comparable store-only sales will likely be negative in the second half of the year.

Rates hold, reduces price target to $250 per from from $315.

Loop Capital, Anthony Chukumba

We were surprised by Ulta Beauty’s F2Q 2019 “miss and lower” — particularly given the company’s relatively strong performance the past few quarters.

Slow cosmetics sales trends are unlikely to “reverse themselves in the near future,” although Chukumba continues to have a “fairly bullish long-term outlook” on Ulta, given the continued deterioration of the mall-based department store channel and the company’s “top-notch” loyalty program.

But Ulta will be a “show me” story in the near term; maintains hold rating, but reduces price target to $270 from $340.

— With assistance by Catherine Larkin

(Updates shares in first and fourth paragraphs and adds Citi downgrade.)