Ulta Beauty Becoming A Better Balanced Business

Shares of Ulta Beauty Inc ULTA lost more than 9 percent Friday morning after the company reported its second-quarter results but some analysts aren't throwing in the towel on their bullish thesis. Jefferies' Stephanie Wissink maintains a Buy rating on Ulta's stock with a price target lowered from $350 to $300 after the earnings report "solidified" the company's long-term growth thesis.

Ulta's earnings report showed that the company is "operating a better balanced business" due to a strong inventory control, improvements in loyalty programs, and a double-digit comp against last year's July clearance event, the analyst added. Perhaps more important, Ulta delivered leverage at store and corp levels which is seen as an "important signal the cost model is starting to bend, allowing greater pass through."

Looking forward to the third quarter, the beauty retailer's outlook reflects a "pull forward of store growth" and related pre-opening expenses along with the roll-out of prestige boutique locations and accelerating labor rates, the analyst continued. But once the company exits the third quarter the leverage in the business model will "meaningfully improve" even on top of the already "impressive" 9 to 11 percent comp growth guidance.

Bottom line, investor concerns and worries are "overdone" and the analyst is "incrementally more confident" in the company's growth prospects.

At last check, shares of Ulta were down 10.11 percent at $210.08.

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