Ulta Beauty (NASDAQ:ULTA) is the largest US beauty retailer and premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services. ULTA operates more than 1,200 stores across 50 states and also distributes its products through its website, which includes a collection of tips, tutorials and social content.
The company has long been a Wall Street darling, with shares up around fortyfold since the financial crisis and around tenfold since IPO in 2007. However, due to a decreased earnings outlook, the share price took a massive hit and is now back to 2016 levels, ~40% below the 52-week high. The profit forecast was lowered to adjust for the current headwinds in U.S. cosmetics. The revised fiscal 2019 outlook provided during Q2 2019 earnings includes, among others:
- increase total sales between 9% and 12% (previously low-double digit growth)
- achieve comparable sales growth of ~4% to 6% (previously 6% to 7%), including e-commerce growth of 20% to 30%
- deliver diluted earnings per share in the range of $11.86 to $12.06 (previously $12.83 to $13.03), including the impact of ~$700M in repurchases and assuming a 23% effective tax rate (previously 24%)
- open approximately 80 new stores, execute ~20 remodel or relocation projects and complete ~270 store refreshes
It is important to note that the revised outlook still entails high growth, to the envy of other retailers. For example, during Q2 2019, ULTA reported net sales increased 12.0%, comparable sales increased 6.2% and diluted EPS increased 12.2%. Yet, the share price fell around 30%. It's not every day that EPS grows by more than 10% but the share price falls by 30%, suggesting that ULTA share price might have been ahead of itself. Not anymore. After the 30%+ drop since Q2 2019 earnings, ULTA is now attractively priced (below 19 times earnings), especially relative to anticipated EPS
