Back to top

Image: Bigstock

ULTA Lags on Q2 Earnings, Cuts FY24 View Amid Weak Consumer Spending

Read MoreHide Full Article

Ulta Beauty, Inc. (ULTA - Free Report) posted drab second-quarter fiscal 2024 results, with the top and the bottom line missing the Zacks Consensus Estimate and earnings declining year over year. ULTA registered lower comparable sales in the quarter due to a shift in consumer behavior toward value and cautious spending, high competition with numerous new beauty distribution points affecting market share, operational disruptions from the ERP system transition and ineffective incremental promotions that did not boost in-store sales as anticipated.

Considering the performance in the first half and a more cautious perspective, the company updated its full-year expectations downward.

ULTA’s Quarterly Results: Key Metrics & Insights

Ulta Beauty reported an earnings per share (EPS) of $5.30 in the quarter, missing the Zacks Consensus Estimate of $5.45. The bottom line declined from $6.02 in the year-ago period.

Net sales of this beauty product retailer advanced 0.9% year over year to $2,552.1 million. The increase was primarily fueled by contributions from new store openings and growth in other revenues. However, the metric missed the Zacks Consensus Estimate of $2,610.5 million.

Comparable sales, which include sales from stores open for at least 14 months and e-commerce transactions, dropped 1.2%. The decline was primarily due to a 1.8% fall in transactions, despite a 0.6% rise in the average ticket size.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

 

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

 

Gross profit totaled $978.2 million, sliding from $993.6 million from the year-ago quarter’s level. As a percentage of net sales, gross profit declined to 38.3% from 39.3%. The downside was mainly caused by reduced merchandise margins and the deleveraging of store fixed costs. However, this was partially mitigated by increased other revenues and reduced inventory shrinkage.

Selling, general and administrative (SG&A) expenses increased to $644.8 million from $600.7 million reported in the prior-year quarter. As a percentage of net sales, SG&A expenses increased to 25.3% from 23.7%. The upside can be attributed to the deleveraging of store payroll and benefits, higher corporate overhead from strategic investments and increased store and marketing expenses, though it was partially offset by reduced incentive compensation.

Operating income was $329.2 million, compared to $391.6 million in the same quarter last year. As a percentage of net sales, operating income was 12.9%, down from 15.5% last period.

ULTA’s Financial Health Snapshot & Store Update

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $414 million. Net merchandise inventories were $2 billion at the end of the reported quarter. Stockholders’ equity at the end of the quarter stood at $2,348.2 million. Net cash provided by operating activities was $358.9 million for the 26 weeks ended Aug. 3, 2024.

The company repurchased 549,852 shares for $212.3 million in the quarter. As of Aug. 3, 2024, Ulta Beauty had shares worth $1.6 billion left under its $2-billion buyback program announced in March 2024. Management expects to buy back shares worth $1 billion in the fiscal 2024. For the said period, capital expenditures are expected to be $400-$450 million.

In the reported quarter, the company opened 17 stores, relocated one, remodeled nine stores and shuttered one store. It ended the fiscal second quarter with 1,411 stores, totaling 14.8 million square feet. For the fiscal 2024, ULTA expects 60-65 net new stores, along with 40-45 store remodeling and relocation projects.

Zacks Investment Research
Image Source: Zacks Investment Research

What to Expect From ULTA in FY24?

Ulta Beauty expects fiscal 2024 net sales of $11-$11.2 billion compared with the earlier mentioned $11.5-$11.6 billion. The company reported net sales of $11.2 billion in fiscal 2023. Comparable sales are expected to remain flat to down 2% year over year. The metric was earlier anticipated to rise 2-3%. The revised forecast accounts for the first-half performance and anticipates that it will take additional time for the company’s growth initiatives to impact sales positively. Additionally, stores facing multiple competitive openings are expected to experience continued pressure compared to the rest of the fleet. The operating environment remains dynamic suggesting further strain on consumer spending.

Management expects an operating margin between 12.7% and 13% compared with the previously-mentioned 13.7% and 14%. For the fiscal 2024, earnings are envisioned to be $22.60-$23.50 per share, lower than the earlier stated $25.20-$26. Ulta Beauty’s earnings came in at $26.03 per share in the fiscal 2023.

Ulta Beauty’s stock has dropped 6.9% in the past three months compared with the industry’s decline of 11.5%.

3 Promising Retail Stocks

Sprouts Farmers (SFM - Free Report) , which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy). SFM has a trailing four-quarter earnings surprise of almost 12%, on average.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 9.6% and 18.7%, respectively, from the year-ago reported numbers.

Boot Barn Holdings, Inc. (BOOT - Free Report) currently sports a Zacks Rank #1. BOOT has a trailing four-quarter earnings surprise of 7.1%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings suggests growth of 10.7% and 8.9%, respectively, from the year-ago levels.

DICK'S Sporting (DKS - Free Report) , a sporting goods retailer, currently carries a Zacks Rank #2 (Buy). DKS delivered an average earnings surprise of 4.7% in the trailing four quarters.

The consensus estimate for DICK'S Sporting’s current financial-year earnings and sales indicates growth of 1.9% and 6.9%, respectively, from the year-ago reported actuals.

Published in