Ulta Beauty (ULTA, Financial) opened nearly 9% higher today despite issuing a gloomy FY25 outlook. The company slashed its previous projections due to a challenging macroeconomic backdrop and intensified competition. Last month, Ulta warned that the beauty category was starting to feel the effects of cumulative inflationary pressures, which had previously been resilient. This warning set investor expectations low ahead of Ulta's Q1 report yesterday, causing shares to tumble over 25% since April.
However, Ulta's lowered FY25 guidance was better than expected. The company projected EPS of $25.20-26.00, down a dollar from its previous outlook, revenues of $11.5-11.6 billion, down $100 million, and comp growth of 2-3%, down from 4-5%. Investors are encouraged by some promising developments, suggesting that the worst of Ulta's headwinds may occur this year.
- Ulta delivered Q1 EPS of $6.47, ahead of consensus, with top-line growth of 3.5% year-over-year to $2.73 billion, consistent with analyst forecasts. Comparable sales growth of 1.6% matched management's prediction, driven by traffic growth in stores and digital platforms, and a 0.3% increase in average ticket.
- By product category, makeup lagged in Q1, slipping by a mid-single-digit percentage. Conversely, all other categories enjoyed positive growth. Fragrance registered double-digit expansion, skincare was up by mid-single digits, haircare by a low single digit, and services grew comps in the high single digits.
- Ulta's results were sufficient to maintain overall market share, a positive development given the competitive pressures in the beauty industry. However, market share growth was uneven, with losses in the prestige category but gains in the mass category.
- Ulta expects growth within the broader beauty category this year, reiterating its mid-single-digit percentage outlook. However, the midpoint of Ulta's FY25 revenue forecast translates to just 3% growth year-over-year, indicating potential minor market share loss. CFO Paula Oyibo noted that initiatives to strengthen the assortment, accelerate social relevance, and enhance the digital experience should yield meaningful results, but the company maintains a conservative view for the remainder of the year.
Bottom line, after many quarters of strength in the beauty industry, cracks are appearing, affecting both prestige and mass products. While Ulta's Q1 report was better than feared, the year ahead may bring significant challenges due to intensified competition and lingering inflationary pressures.
