30 Aug Ulta Beauty stock plunges
(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.
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 were down 29 percent this morning, erasing what had been an impressive run this year.
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 near-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
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.