Ulta Beauty (ULTA, Financial) is facing a challenging period as it erases its yearly gains, heading towards a significant drop from late November. The company's recent conference revealed a near-term outlook that was less than optimistic, projecting Q1 (Apr) comps to grow by low single digits year-over-year. This forecast falls at the lower end of its 1H24 outlook and below its FY24 target of +4-5%. The quick encounter with its bearish 1H24 scenario, only a month after its initial outline, has investors worried that ULTA might reduce its FY24 guidance, especially as the second half of the year now requires to compensate even more.
The beauty sector was already warned by ULTA of a moderating growth in FY24, but the slowdown has occurred quicker than anticipated, affecting the entire cosmetics industry. Companies like e.l.f. Beauty (ELF, Financial), Coty (COTY, Financial), and Estee Lauder (EL, Financial) are experiencing downturns due to these developments. A notable trend is the significant moderation in both prestige and mass segments compared to Q4 (Jan), with the mass category's early moderation particularly impacting ELF's shares today. Kohl's (KSS, Financial), with its Sephora (LVMH, Financial) shops, is also under pressure due to declining interest in the prestige category.
Increased competition is another factor contributing to ULTA's cautious guidance, although it has been a background concern for several quarters. ULTA faces competition from both physical stores like Walmart (WMT, Financial) and Macy's (M, Financial), and numerous online options. Despite this, ULTA's management remains confident in their unique consumer experience to navigate through the competitive landscape.
The beauty industry has shown resilience in recent years, advancing despite inflation and economic uncertainty. However, ULTA's current outlook highlights industry-wide challenges rather than issues unique to the company. Despite a mild Q4 result that hinted at positive trends and a strong sales growth forecast, today's announcement has dimmed the previously optimistic outlook, leading to a significant drop in ULTA's stock value.
