It’s been an ugly few days for Ulta Beauty, with a downgrade from Guggenheim coming on the heels of the cosmetics maker’s tumultuous earnings report late last week.
Analyst Steven Forbes cut his rating on
(ticker: ULTA) to Neutral from Buy and removed his $310 price target on Tuesday, citing those fiscal fourth-quarter earnings results that included downbeat full-year guidance.
Ulta’s fourth quarter came in ahead of Forbes’ and the Street’s expectations. But Forbes is more concerned about Ulta’s forecast, which he noted implies a 320 basis point reset to the company’s EBIT—earnings before interest and taxes—margin. (One basis point equals one-hundredth of a percentage point.) Some of that drop will come down to temporary issues, but there are other ones that look more daunting, such as rising wages.
This, combined with the possibility that more shoppers will permanently prefer e-commerce to in-store shopping post-pandemic, lead Forbes to step to the sidelines. While Ulta has its own online business, margins tend to be lower on these purchases for retailers in general given shipping costs. Moreover, Covid-19 awakened many beauty brands to the benefit of direct-to-consumer sales, rather than relying on third-party retailers like Ulta.
Forbes also called Ulta’s valuation elevated at 15 times his fiscal 2022 earnings before interest, taxes, depreciation, and amortization (Ebitda) estimates, versus an average of 12 times for its peer group. Given ongoing uncertainty about the stock, he prefers to wait for more clarity on the company’s longer-term outlook before getting more positive.
Ulta is down 1.7% to $317 in recent trading. The shares have gained 10% since the start of the year and are up nearly 105% in the past 12 months. Other analysts are more bullish on the stock.
Write to Teresa Rivas at [email protected]