Ulta Beauty’s shares dropped by 7% in extended trading on Thursday after the company reported its first earnings miss in four years and reduced its full-year guidance. The decline came after a disappointing second-quarter performance, with same-store sales falling by 1.2%, a stark contrast to the 8% growth seen a year earlier and below Wall Street’s expectation of 1.2% growth.
Key Factors Behind the Sales Decline
CEO Dave Kimbell acknowledged that while there were positive aspects of Ulta’s business, the overall second-quarter performance fell short of expectations, primarily due to a drop in comparable store sales. During the earnings call, Kimbell pointed to four key factors contributing to the decline:
- Operational Disruption: An unexpected operational issue arose from changes in store systems, which affected sales.
- Underwhelming Promotions: The impact of promotional activities was less effective than anticipated.
- Cautious Consumer Spending: Customers have become more cautious with their spending, reflecting broader economic concerns.
- Increased Competition: The beauty industry has seen heightened competition, which has challenged Ulta’s market share, particularly in the prestige beauty sector, including makeup and hair care categories.
Kimbell also noted that 80% of Ulta stores have been impacted by these challenges, a scale of disruption that is unusual for the company.
Revised Full-Year Guidance
Given the challenges faced in the second quarter, Ulta has revised its full-year outlook. The company now anticipates same-store sales to range from flat to a 2% decline, compared to its earlier projection of 2% to 3% growth. Additionally, Ulta has lowered its full-year revenue forecast to between $11 billion and $11.2 billion, down from the previous range of $11.5 billion to $11.6 billion. Full-year earnings per share are now expected to be between $22.60 and $23.50, a reduction from the earlier forecast of $25.20 to $26.
Moving Forward
Despite the challenges, Kimbell expressed confidence in Ulta’s underlying business strength, citing positive trends in guest engagement, the success of new store openings, and growth in the salon and loyalty programs. He emphasized that while the company is still navigating through competitive pressures, these positive signals indicate that Ulta remains a strong player in the beauty industry.
CFO Paula Oyibo added that the updated outlook reflects the expectation that it will take more time for the company’s actions to positively impact sales and that competitive pressures will likely continue in the near term. However, Ulta remains focused on addressing the factors that have impacted its performance and is committed to regaining its momentum in the market.
