Warren Buffett Just Trimmed His Stake in Ulta Beauty Stock. Time to Sell?

Core Viewpoint - Berkshire Hathaway sold over 95% of its stake in Ulta Beauty shortly after acquiring it, raising questions about the company's future prospects and investment potential [1][2]. Company Performance - Ulta Beauty has faced challenges with slowing sales growth due to weakened consumer spending and increased competition, leading to a decline in comparable store sales of 1.2% and a modest overall revenue increase of 1% to $2.55 billion in the second quarter [5][6]. - The company's gross margin decreased from 39.3% to 38.3%, while selling, general, and administrative expenses rose from $600.7 million to $644.8 million, resulting in a drop in operating margin from 15.5% to 12.9% and a decline in earnings per share (EPS) from $6.02 to $5.30 [6]. Industry Context - The beauty retail industry is expected to return to low to mid-single-digit growth rates, similar to trends observed during the 2010s, following a pandemic-related boom [5]. - Ulta's stock currently trades at a price-to-earnings ratio of less than 15, which is considered attractive given its historical performance of over 1,100% return since its IPO in 2007 [4]. Strategic Outlook - Ulta has set long-term targets to grow from over 1,400 stores to more than 1,800 and aims to increase its loyalty membership from 43.9 million to 50 million by 2028 [7][8]. - The company has outlined financial targets for 2026 and beyond, including 4% to 6% revenue growth and low-double-digit EPS growth, focusing on enhancing product assortment, customer experience, and loyalty engagement [8]. Competitive Advantages - Despite recent struggles, Ulta maintains competitive advantages such as large retail stores, in-store salons, a robust loyalty program with over 40 million members, and 800 locations within Target stores [9]. - The current valuation is seen as attractive, especially if Ulta can achieve its intended double-digit EPS growth [10].