Investors priced in so much expectation in Ulta Beauty (NASDAQ:ULTA) that when it missed expectations and lowered its outlook, the stock cratered by 29.6% last week on Aug 29. How weak were the Q2 results?
Ulta reported earnings of $2.72 a share (non-GAAP) as revenue grew 12.1% to $1.67 billion. In hindsight, the company could not sustain earnings growth forever at that compound rate. Now, the stock could find new bottoms as investors reset expectations. For value investors willing to wait, Ulta may re-accelerate earnings as demand picks up during the holiday season and at the start of next year.
It is still too soon to pick up shares at these levels. Better prices may come in five to seven days. The second half of the year will slow as Ulta forecasts headwinds and volatility in the U.S. cosmetics market. Near-term, the company is still growing market share, building brand awareness, and delivering double-digit growth on almost every product category.
Growth in the make-up category decelerated, with growth slowing to the single digits declines in the first six months of the year. Newness and innovation in the products are not yet resonating with consumers.
Your Takeaway
Ulta Beauty is still an expensive stock without momentum to help drive gains. Wait for selling pressure to ease before looking at the stock again.
