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Despite 12% Sales Increase, Ulta Beauty Stock Dips 28% Amid Slashed Full-Year Outlook

Despite 12% Sales Increase, Ulta Beauty Stock Dips 28% Amid Slashed Full-Year Outlook

Ulta Beauty had what would traditionally be perceived as a very strong quarter — net sales increased 12.0% to $1.67 billion, while comparable sales increased 6.2% and net income increased 8.7% to $161.3 million. But Ulta’s stock tumbled more than 28% in the wake of the Q2 report as the beauty retailer missed Wall Street expectations on all three metrics, and cut its full-year sales, comparable sales and earnings per share (EPS) outlook.

For the remainder of 2019, Ulta Beauty now anticipates:

  • Total sales between 9% and 12% (down from low double-digit growth);
  • Comparable sales growth of approximately 4% to 6% (previously 6% to 7%);
  • Diluted EPS in the range of $11.86 to $12.06 (previously $12.83 to $13.03); and
  • E-Commerce growth of 20% to 30% (maintained from the previous goal).

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Ulta opened 20 stores during Q2 and expects to open approximately 80 new stores in 2019. Additionally, the company wants to remodel or relocate 20 stores and “refresh” 270 more stores throughout the year.

In an earnings call, CEO Mary Dillon said that growth in the makeup category has been decelerating over the last two years, recently turning negative, with U.S. cosmetics experiencing mid-single-digit declines in the first six months of 2019.

“Over the past several years, we've seen strong growth in cosmetics driven by new rituals and application techniques like considering and brow styling and innovative new product formats like Liquid Lip, Palette and Minis,” Dillon said in a statement. “This innovation resulted in new makeup routines requiring new products, which drove strong incremental growth. The most recent cycle of innovation is just not driven those behaviors, resulting in a soft cycle for the cosmetics category in the U.S. As innovation and newness price the market has not driven the expected growth.”

Ulta has taken more steps to provide more value to consumers outside its own cosmetics offerings, recently launching SPARKED at Ulta Beauty, an initiative designed to give consumers access to up-and-coming direct-to-consumer (DTC) brands spanning the hair, skincare and makeup categories. The inaugural brands selected for the initiative include UOMA Beauty, Elcie, ZOEVA and Love Wellness. 

SPARKED is designed to enable emerging companies to showcase their products in a larger setting while also giving customers an opportunity to discover something they might not have otherwise considered. 

The retailer also has expanded its partnership with Google Cloud amid increased engagement with customers in-store and online, along with the development of its Virtual Beauty Advisor tool designed to deliver tailored recommendations and help shoppers choose the right products.

As beauty headwinds in the U.S. continue, Ulta is building out its first international operation in Canada. The retailer has not given any details as to when that expansion will begin.

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