Ulta Beauty Downgraded By Goldman Sachs As Loyalty Program Growth Slows

Ulta Beauty Inc ULTA risk-reward scenario appears more balanced following the stock’s recent recovery, according to a new report from Goldman Sachs.

The Analyst

Goldman Sachs analyst Matthew Fassler downgraded Ulta from Buy to Neutral rating and raised the price target from $241 to $271.

The Thesis

Ulta Beauty’s sales momentum appears to be moderating, according to the analyst.

“ULTA shares have rebounded sharply from lows posted early this year, such that valuation now appears fair,” Fassler said in a Tuesday note.

Ulta’s same-store sales numbers have decelerated for the past six quarters, the analyst said. This reflects a slowing of the prestige cosmetics market and moderating share trends, he said.

Even with the downgrade, Fassler said he continues to view Ulta as well-managed, “with a powerful core business proposition and solid visibility against conservative near-term guidance."

Ulta’s loyalty program has seen its growth moderate over the past five quarters — an important figure to note, since the loyalty program makes up a vast majority of the company’s sales, Fassler said. Growth in loyalty membership peaked at 29 percent in the fourth quarter of 2016, and posted just 17-percent growth in the first quarter of 2018, the analyst said.

“With a higher proportion of stores opening in existing markets each year-we expect incremental store openings to drive fewer new members."