Macro

Ulta Warns of Beauty Sector Slowdown, Shares Drop 14%

Ulta Beauty's sales forecast dip sparks market concerns, signaling a broader slowdown in consumer spending on cosmetics.

By Athena Xu

4/3, 14:34 EDT
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Ulta Beauty, Inc.
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Key Takeaway

  • Ulta Beauty CEO reports a spending slowdown in the beauty sector across all price points and product types, signaling broader consumer caution.
  • Ulta's shares plummeted about 14% after acknowledging flat growth expectations in comparable sales for the current quarter.
  • Despite the slowdown, experts anticipate continued consumer prioritization of beauty products, amidst a forecast of modest retail sales growth for this year.

Market Jitters

Ulta Beauty (ULTA), a prominent player in the beauty supplies sector, has recently indicated a deceleration in the overall growth of the beauty category, causing concern among investors and casting a shadow over the cosmetic industry's future prospects. During a J.P. Morgan Retail Round-Up Conference, Ulta's management set expectations for the company's first-quarter comparable sales to be at the lower end of their initial low single-digit guidance. This announcement led to a significant 12% drop in Ulta's shares and affected the broader cosmetic stock market, with companies like e.l.f. Beauty (ELF) also feeling the impact.

Slowing Growth Concerns

Despite the beauty industry's historical resilience during economic uncertainties, Ulta's management has highlighted a potential slowdown. They noted that, after years of strong growth, the company is now navigating through challenging "economic environment dynamics." This cautious outlook marks a shift from the sector's past performance, where beauty companies have managed to thrive by catering to consumers' desires to maintain their beauty routines amidst broader macroeconomic risks.

Financial Forecasts Fall Short

Ulta's forecast for fiscal 2024 earnings ranges between $26.20 and $27 a share, which falls short of analysts' expectations of $27.01 a share. This adjustment reflects the company's anticipation of moderated growth in the mid-single-digit range for the category, contingent on the absence of major economic events. Such projections have led to a bearish sentiment among investors, with Ulta's stock experiencing its largest percentage decrease since May 26, 2023, and marking a 6.8% decline this year.

Street Views

  • Jessica Ramirez, Jane Hali & Associates (Neutral on Ulta):

    "We do expect a normalization to occur this year in the category. However, we believe the consumer will continue to prioritize the beauty category as products across skin care and wellness are replenishable."

Management Quotes

  • Dave Kimbell, CEO of Ulta:

    "The entire beauty category is experiencing weaker spending across price points and product segments... Things that are going on in our consumers’ lives has led to a bit slower growth than we had anticipated in the category."

  • Jack Kleinhenz, NRF Chief Economist:

    "The foundation of the economy is relatively sturdy and still on a sustainable path. Barring unexpected shocks, it should continue growing in 2024, although not spectacularly" as a result of slower job and wage gains."