Why These Ulta Beauty Analysts Are Not Impressed With Beat-And-Raise Quarter

Shares of Ulta Beauty Inc (NASDAQ: ULTA) tanked in early trading on Friday, despite the company reporting a beat-and-raise quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release.

• Telsey Advisory analyst Dana Telsey maintained an Outperform rating and price target of $600.
• Oppenheimer analyst Rupesh Parikh reiterated an Outperform rating and price target of $540.
• William Blair Analyst Dylan Carden reaffirmed an Outperform rating on the stock.

Check out other analyst stock ratings.

Telsey Advisory: Ulta Beauty reported its second-quarter earnings ahead of the consensus estimate, with the upside being driven by “slightly stronger topline growth and better-than-expected operating deleverage, as gross margin deleverage was greater than expected,” Telsey said in a note.

“The better-than-expected topline growth reflected a 9.0% increase in transactions which more than offset a 1.0% decrease in average ticket, as well as growth across all categories, with DD comps in both prestige and mass skincare, while haircare comps were up MSD and makeup comps improved LSD in the quarter,” the analyst further wrote.

Oppenheimer: Ulta Beauty managed to beat earnings expectations even against “an increasingly difficult retail backdrop and amidst difficult compares,” Parikh said.

The company’s gross margins were adversely impacted by “lower merchandise margins, higher inventory shrink, and higher supply chain costs,” which more than offset “strong growth in other revenue and fixed cost leverage."

William Blair: “The company offset lower gross margin with better cost control, flowing through sales upside for a modest beat on EPS,” Carden wrote.

Management raised their full-year sales guidance “by roughly 0.5% at the midpoint, and raised EPS expectations by 1%,” the analyst said. However, the EPS will likely decline year-over-year in the third quarter “as certain costs associated with the company’s ongoing transformation initiatives shift into the quarter."

ULTA Price Action: Shares of Ulta Beauty had declined by 2.55% to $411.98 at the time of publication Friday.