Ulta Beauty Shares Soar After Strong Earnings, New Partnerships

After Ulta Beauty, Inc. ULTA demonstrated better-than-expected second-quarter results, analysts remain bullish on the beauty supply company.

The Analyst

Raymond James analyst Joseph Altobello maintained a Market Perform rating.

William Blair analyst Daniel Hofkin maintained an Outperform rating.

The Thesis

Ulta Beauty reported earnings per share valued at $2.46, amounting to a 34-percent increase over 2017. Within this growth, Altobello said 23 points were derived from a lower tax rate, while the upside was driven by increased sales and operating margin, as well as a slightly lower share count, the note said.

Altobello noted that while Ulta Beauty’s comps remain healthy, the second quarter became the seventh consecutive quarterly deceleration, caused by the slowdown of some prestige makeup brands.

“Despite the company’s continued strong performance and market shares gains amid a challenging beauty retail landscape, we remain concerned about the continued deceleration in same-store sales growth and margin pressures, which prevent us from getting more constructive on the stock,” Altobello said in a note.

Hofkin cited growth of selective brands, such as Clinique, Lancome, MAC and Benefit, as well as weakness in others like Urban Decay and NYX. Much of the growth is in direct result from the push of e-commerce.

“Continued strong growth in the e-commerce business and the ULTAmate Rewards loyalty program remain key drivers behind Ulta’s comps (although retail store comps also increased at a midsingle-digit rate overall and remained positive even at mature stores),” Hofkin said in a note.

The announcement of new brand partnerships will likely drive growth, as well.

“While few details were given, we understand that Ulta Beauty will be the exclusive retailer of Kylie Cosmetics and that the brand will be available in all Ulta Beauty stores and online in time for the holiday season,” Hofkin said.

“In addition, the company highlighted the recent addition of Juvia’s Place, a digitally native brand founded just a couple of years ago. We believe these announcements should help alleviate investors’ concerns regarding the perception that Ulta is not participating in the fastest growing segment of the beauty market (i.e., digitally native brands).”

Price Action

Ulta Beauty shares were up 5.5 percent at $257.87 at time of publication Friday.

Related Links:

Ulta Beauty Downgraded By Goldman Sachs As Loyalty Program Growth Slows

Ulta's Valuation Pushes This Bull To The Sidelines