Saturday, November 9, 2024

Ulta Trims Full-year Forecasts Amid Beauty Shopping Slowdown

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Ulta Beauty cut its full-year forecasts as the company’s growth has slowed.

The Bolingbrook, Ill.-based beauty retailer is expecting net sales for fiscal 2024 to come in at between $11.5 billion and $11.6 billion, down from its previous forecast of $11.7 billion to $11.8 billion, it said on Thursday.

Diluted earnings per share are anticipated at $25.20 to $26, lower than Ulta’s prior estimate of $26.20 to $27.

“I remain confident in our differentiated model, the resilience of the beauty category, and our ability to execute against our plans, but we have adjusted our annual guidance as we anticipate the dynamics we faced in the first quarter to continue for the balance of the year,” said Dave Kimbell, Ulta’s chief executive officer.

In April, speaking at a J.P. Morgan conference in New York City, he told investors that he had witnessed a slowdown across the beauty category, albeit coming off of many strong years of growth.

In its first quarter ended May 4, net sales increased 3.5 percent to $2.7 billion, up from $2.6 billion but a touch below Wall Street analysts’ forecast of $2.72 billion. Comparable sales increased just 1.6 percent, compared to the same period a year earlier when growth was close to 10 percent.

In particular, Ulta reported that its prestige business was challenged in the first quarter, reflecting the impact of increased distribution for key brands, timing shifts of product movements, and the lapping of the impact of strong social media engagement with certain brands last year.

Net income was $313.1 million, or $6.47 per diluted share, compared to $347.1 million the prior-year period. This was above forecasts of $6.25.

During a call with analysts, Kimbell, who forged Ulta’s partnership with Target Corp. that includes shops-in-shop, said he had never seen a more dynamic environment in beauty: “For the entire 33-year history of this company, we’ve been competing in a very competitive environment. What’s unique about what’s going on today is the cumulative impact of the competitive intensity, really driven by a significant increase in distribution of prestige, both in-store and online,” he said. “To have over 1,000 new locations within a short-term period. It’s unprecedented in our history, and probably in retail more broadly.”

Competitor Sephora, too, has been ramping up pressure through a partnership with Kohl’s. Speaking Thursday, Kohl’s CEO Tom Kingsbury said it will end the year with Sephora in 1,050 stores (Kohl’s operates 1,100 stores) and that the rollout has been attracting a younger, more diverse customer shopping more frequently. 

Increased competitive pressure is also coming from Amazon, which has been wooing premium brands such as Clinique and Kiehl’s to its site.

Kimbell said he would share more details of the plan to claw back market share during Ulta’s investor day in October. In the meantime, the retailer is focusing on five key areas: strengthening the assortment, accelerating social relevance, enhancing the digital experience, leveraging the loyalty program and evolving promotional levers.

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