Wall Street is looking ahead to what
Ulta Beauty
‘s earnings, due Thursday, will say about the cosmetics retailer’s ability to weather a tougher economic environment.
In a Monday research note, Citi analyst Kelly Crago lowered her price target on
Ulta Beauty
stock (ticker: ULTA) to $440 from $475. She maintained a Neutral rating on the shares but said she is bracing for news that could send the stock lower.
The shares were down 0.2% to $413.52 on Monday, leaving the stock, a Barron’s pick in February, almost 12% lower so far this year. The
S&P 500
has gained nearly 19%.
“We anticipate management will lower F23 guidance, taking a more cautious view of the holiday season given slowing category trends, higher promos/ongoing shrink headwinds,” Crago said. “As we look to F24, we believe these challenges will continue and with the macro environment uncertain, we are taking a more cautious view.”
Ulta didn’t immediately respond to a request for comment.
“Shrink headwinds” refers to theft and other losses of inventory. Retailers have recently cited a rise in shoplifting as a factor hurting margins.
Chief Financial Officer Scott Settersten discussed the problem on Ulta’s second-quarter earnings call in August. “Our efforts to address shrink are having an impact, but the overall environment remains challenging,” he said. Settersten said the company had added new fragrance fixtures—cabinets staff must open with a key—to rein in the problem, but Crago said she believes the inventory losses go beyond perfume.
Piper Sandler analyst Korinne Wolfmeyer is bullish on Ulta’s stock, rating it at Overweight with a target of $540 for the price. But she wrote Nov. 20 that she expects management to be more cautious this earnings cycle “as it relates to the macro and a heavier promotional environment to activate purchases, and an unchanged FY’23 outlook is likely.”
The analyst also noted that Ulta is offering bigger discounts than last year on big-ticket items, which she believes is a sign that consumers are being more cautious with their spending.
Not all analysts have doubts. Raymond James analyst Olivia Tong rates the stock as a Strong Buy with a $500 price target.
“ULTA shares have been under pressure on concerns of slowing growth and normalization of margins against challenging comps,” Tong wrote on Monday. “That said, we continue to expect Beauty to be one of the more resilient categories in Consumer, an affordable luxury for holiday, and a robust pace of innovation to keep momentum going.”
Write to Angela Palumbo at [email protected]
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