What's In Store For Ulta Beauty This Earnings Season? Analyst Predicts Lower Margins

Company Overview - JP Morgan analyst Christopher Horvers reiterated an Overweight rating on Ulta Beauty, Inc., lowering the price forecast to $450 from $544 [1] - The company is set to report its earnings results soon, with expectations for a flat comp forecast for the second quarter, while most investors anticipate a -1% outcome [1] Earnings Estimates - The analyst has reduced the comps estimate for the second half of 2024 to +1%, with a revised second-quarter EPS of $5.46 and FY24 EPS of $25.10, compared to consensus estimates of $5.50 and $25.36, respectively [2] - Expectations for promotions, merchandise margins, and Ulta's ability to enhance overall non-occupancy gross margins in the latter half of the year are considered too low [2] Operational Challenges - Ulta is navigating past last year's price and cost challenges while undertaking a full private label product reset and improving supply chain efficiencies [3] - The company reduced its merchandise margin outlook during its first-quarter call, which can significantly lower a retail stock's valuation if sales targets are missed and gross margin shortfalls occur due to promotions [3] Market Position - The beauty category is growing faster than GDP, with Ulta gaining market share and benefiting from in-depth consumer insights [4] - Ulta is noted as the only national beauty retailer offering both prestige and mass products, along with services and a leading hair care assortment [4] - Department stores are expected to continue losing market share in the beauty category over the long term [4] Stock Performance - As of the latest check, ULTA shares are trading lower by 0.63% to $369.00 [5]