Ulta Beauty recently reported results for its fiscal second quarter, revealing lower-than-expected earnings and comparable sales figures. Following this announcement, the company also issued a downgraded guidance, which industry analysts expect to put downward pressure on the beauty retailer's stock price in the short term.
According to Evercore ISI, the adjustments come during a challenging market period. On Thursday, Ulta Beauty revised its full-year earnings-per-share guidance to a range of $22.60 to $23.50, a decrease from the previous forecast of $25.20 to $26. The company also adjusted its revenue expectations, which are now set between $11 billion and $11.2 billion, down from its earlier outlook of $11.5 billion to $11.6 billion.
Additionally, comparable sales are now projected to be flat or to decrease by as much as 2%, in contrast to the earlier anticipated growth of 2% to 3%. As analysts surveyed by Capital IQ have noted, they currently forecast a GAAP EPS of $23.31 and a revenue figure of $11.18 billion for the current fiscal year.
Following these announcements, Ulta's stock price experienced a decline of 2.7% during Friday’s trading session. Chief Financial Officer Paula Oyibo elaborated during the earnings call with analysts, stating, "In addition to reflecting our first half performance, our updated outlook for sales assumes it will take more time for our actions to change the top line trajectory, and that stores impacted by multiple competitive openings will continue to be pressured more than the rest of the fleet." She added that the operating environment continues to remain dynamic, highlighting that the lower end of Ulta's revised forecast indicates additional pressure on consumer spending.
Reflecting on the difficult strategic decisions, Evercore ISI characterized the guidance revision as a "tough, but necessary" move aimed at positioning the retailer to avoid potential further negative revisions as the year progresses. They noted that the second half guidance does not assume any improvements in same-store sales and suggests a potential deceleration of approximately 400 basis points compared to the first half, which is considered a realistic expectation given the current market share and margin pressures facing Ulta at this time.
In advance of Ulta's upcoming analyst day scheduled for October, Evercore ISI believes that this proactive measure is ultimately beneficial. They stated, "While the stock is certainly reflecting a tough back half, we think it was the right move ahead of Ulta's October analyst day to avoid the risk of having to lower the baseline year for its three-year targets." During the three-month timeframe that concluded on August 3, Ulta Beauty reported earnings per share of $5.30, down from $6.02 in the same quarter last year, which also fell short of the Capital IQ consensus estimate of $5.45.
Revenue figures climbed to $2.55 billion, a slight increase from $2.53 billion, yet still missing Wall Street's expectations of $2.61 billion. On the other hand, comparable sales dropped by 1.2%, contrary to analyst predictions for a 1.4% increase. CEO Dave Kimbell explained, "Our second quarter performance did not meet our expectations, driven primarily by a decline in comparable store sales.
We are clear about the factors that adversely impacted our store performance, and we have actions underway to address the trends. We are focused on driving stronger sales and traffic and continuing to exercise financial discipline." Stock Price: 357.54, Change: -10.05, Percent Change: -2.73..