Ulta Beauty Stock Moving Up on Earnings Beat, Guidance Miss

Ulta Beauty's stock (NASDAQ: ULTA) is a notable pre-market gainer, up 6.53% on the back of earnings.

For the entire fiscal year, net sales grew by 0.8% to $11.3 billion, with comparable sales increasing by 0.7%. However, the full-year gross margin saw a slight decline of 30 basis points to 38.8%. Operating profit was 13.9% of sales, down from 15% in fiscal 2023, while diluted EPS decreased by 2.7% to $25.34 per share.

Ulta's CEO, Kecia Steelman, emphasized driving core business growth through simplified focuses on brand building, personalization, and digital acceleration, crucial strategies to maintain and expand its competitive moat. However, the company anticipates a low double-digit decrease in operating profit in 2025 due to strategic investments and inflationary pressures, with gross margins also expected to face some pressures.

The 2025 capital expenditures are projected between $425 million and $500 million, highlighting Ulta’s continued investment in its infrastructure and customer offerings. Meanwhile, Ulta has already returned $1 billion to shareholders through its stock buyback program, reflecting confidence in its long-term growth strategy.

• The market sentiment for ULTA is mixed, with some bearish tendencies due to recent stock performance and analyst adjustments.
• The stock has experienced significant pressure, falling 26.72 % year-to-date and is trading near its 52-week low.

Recent Performance

• Fourth Quarter 2024 Results (Exceeding Expectations): Ulta Beauty reported strong Q4 2024 results, beating analyst expectations.
  • Earnings Per Share (EPS): $8.46 (vs. $7.11 expected)
  • Revenue: $3.5 billion (vs. $3.46 billion expected)
  • Net sales of $3.49 Billion
  • Comparable sales increase: 1.5%
• Stock Price Movement:
  • Decreased by 4.48% in the past 24 hours.
  • Down 25.85% in the last 3 months.
  • Down 44.38% in the last 12 months.
  • Shares jumped 7% in premarket trading Friday after Q4 Results.

Analyst Actions and Price Targets

• Raymond James: Cut ULTA's price target to $450 (from $495), maintaining an “Outperform” rating.
• Jefferies: Adjusted its price target to $354 (from $412), maintaining a “Hold” rating.
• DA Davidson: Adjusted its price target to $415 (from $510), maintaining a “Buy” rating.
• Evercore ISI: Reiterated its “Outperform” rating with a $465 target.
• BMO Capital: Raised the price target on to $467.00 (from $420.00) while maintaining a Market Perform rating.
• Average Analyst Price Target: Around $468.58, with a high of $538.00 and a low of $360.00, based on 19 Wall Street analysts.

Guidance and Future Outlook

• Fiscal Year 2025 Guidance (Below Expectations): Ulta's guidance for FY 2025 was below consensus estimates.
  • Projected EPS: $22.50-$22.90 (vs. $23.61 expected)
  • Projected Revenue: $11.50B-$11.60B (vs. $11.67B expected)
  • Comparable store sales growth: Flat to slightly positive (0% to 1%)
• Long-Term Targets: Ulta reaffirmed its long-term targets, including low-to-mid single-digit growth in the beauty category.
• Strategic plans: Include investments in store expansion, wellness products, and digital innovation.

Challenges and Opportunities

• Competition: Ulta faces increased competition from other retailers and brands with expanded distribution.
• Market Share: The company acknowledges potential market share losses in 2025.
• Macroeconomic Pressures: Macroeconomic factors are also a concern.
• New CEO: Kecia Steelman, took over the role after Dave Kimbell retired in January.
• Brand Investment: Ulta plans to accelerate brand investment and continue opening/refreshing stores.
• New Brands: Ulta has launched 40 new brands in 2024.

Key Financials

• Gross profit margin: 42.48%.
• Operates with moderate debt levels.
• Trading at a P/E ratio of 12.49.

The company experienced a 1.9% decline in net sales to $3.5 billion, yet showed resilience through strategic growth and customer engagement initiatives.

Despite the slight dip in quarterly sales, Ulta maintained robust customer engagement. Its loyalty program expanded by 3% to reach an unprecedented 44.6 million members. The strategic launch of 40 new brands, including exclusive ones, and the opening of 60 new stores alongside 100 Ulta Beauty at Target locations underscore Ulta’s commitment to growth and customer satisfaction.

Looking forward, Ulta expects 2025 to be a transitional year. The company has planned net sales between $11.5 billion and $11.6 billion, with an anticipated operating margin of 11.7% to 11.8% of net sales. The expected diluted EPS range between $22.50 and $22.90 per share. Ulta is making investments to expand internationally into markets like Mexico and the Middle East by 2025, acknowledging the need for balanced brand building and marketplace expansion.

Despite the challenges faced, Ulta Beauty Inc remains focused on strategic expansions and engaging its customer base. The company’s commitment to innovation and customer satisfaction, coupled with its strategic planning, positions it for future growth amidst industry challenges.