Analyst Sees Ulta Beauty's Q2 Outperformance Driven By Shifting Beauty Trends

JP Morgan analyst Christopher Horvers reiterated the Overweight rating on Ulta Beauty, Inc. (NASDAQ:ULTA), citing recent data that suggests a stronger second-quarter performance than current market expectations.

Horvers highlighted a positive shift in beauty product sales within the Food, Drug, and Mass (FDM) channels, which turned slightly positive at +0.1% for the four weeks ending June 14. This marks an improvement from the prior month’s -1.2% (which was also revised up by 30 basis points).

While quarter-to-date trends saw a slight dip to +0.1% through June 14 from +0.5% as of May 31, potentially due to a post-Memorial Day Weekend slowdown, Horvers emphasized the significant correlation between Ulta Beauty’s same-store sales and broader beauty market data: a 65% correlation with NielsenIQ’s cosmetics data and 53% with overall beauty data.

Also Read: Amazon’s Prime Day Secret Weapon? Lipstick And Luxury

Analysis of year-over-year and two-year comparisons in Nielsen data, corroborated by Circana, indicates robust second-quarter trends for the beauty sector.

Based on this, Horvers projects a second-quarter growth range of +4% to +7% for Ulta Beauty, a forecast significantly exceeding the Consensus Metrix estimate of +2.1% and his own previous projection of +2.0%.

Similarly, Circana data suggests a potential second-quarter growth range of +2.5% to +7%, with Horvers’ Ulta Beauty index based on Circana data centered between +5% and +7%.

This positive outlook contrasts with Ulta Beauty’s May 29 commentary, where management stated that May’s performance was “better than” the first quarter, implying same-store sales above 2.9%. Horvers also noted that sales comparisons will become more favorable in the final two months of the second quarter.

From a guidance perspective, Ulta Beauty had previously communicated expectations for comparable sales to remain relatively consistent throughout the year, with the second and third quarters anticipated to outperform due to easier year-over-year comparisons.

These easier comparisons are attributed to lapping less effective promotions, an ERP-related disruption, and an unprecedented surge in competitive store openings dating back to 2021.

Price Action: ULTA shares are trading lower by 1.18% to $466.19 at last check Tuesday.

Read Next:

• What’s Going On With Amazon Stock Today?

Photo by Gregory C Sanders via Shutterstock