• by Sarah Mahoney  @mahoney_sarah, September 3, 2024

 

While Ulta has been reporting slowing sales for several quarters, its most recent results are almost unheard of: Comparable sales decreased, slipping 1.2%. Overall revenues barely scratched out a gain, rising less than 1% to $2.6 billion in the second quarter of its fiscal year. Net income fell to $252.6 million, compared to $300.1 million in the same period last year.

“While we are encouraged by many positive indicators across our business, our second quarter performance did not meet our expectations,” said Dave Kimbell, chief executive officer, in the earnings report. While he added that the company is “clear about the factors that adversely impacted our store performance, and we have actions underway to address the trends,” he still lowered the company’s forecast for the coming months. Ulta now predicts sales will range from flat to 2% lower for the full year.

Both top and bottom-line numbers came in below expectations, marking a rare miss for the Bolingbrook, Illinois-based company. Ulta has been a category superstar for years, with a mix of buzzy brands that appeal to shoppers up and down the price spectrum. And it typically outshone competitors, rapidly expanding while many mall-based retailers scaled back.

Not these days. Same-store metrics “decelerated further in the second quarter, and traffic turned negative for the first time since 2013, with market share challenged in prestige beauty,” writes analyst Krisztina Katai, who follows the company for Deutsche Bank. “We are disappointed by the softer top-line, especially as it comes in contrast to performance at Sephora stores within Kohl’s, Target, Amazon and Macy’s Bluemercury.”

While she continues to recommend the company as an investment, Katai adds that the retailer “will need to find new ways to stand out amid a more competitive beauty retail landscape. " She predicts it will heavily rely on its loyalty program, promotional events, and tie-ins with brand partners.

Mark Altschwager, an analyst who follows Ulta for Baird, notes that the news means the company's outlook is murkier over the next few months, compounded by “a challenging beauty backdrop.” He still rates the company as likely to outperform its peers: “Ulta continues to have a differentiated position in the beauty market.”