By all accounts, the recent earnings report from Ulta Beauty (NASDAQ:ULTA) should have been met with at least some celebration. While the news wasn't all positive, what emerged was not only enough to cause a 4% drop in the company's share price, but also was enough to maintain a “hold” rating out of Stifel. That will make some likely question whether the beauty retailer is worth staying in on. A look at the fuller picture, though, suggests that this slump is indeed just that: a temporary slump.
A Winner of an Earnings Report
So the good news for Ulta Beauty was substantial, and starts with earnings. The company posted earnings of $1.64 per share, which was well above the Zacks consensus of $1.51. This isn't the first time that Ulta Beauty has beaten expectations, either. Last quarter, it did likewise, bringing in $0.73 per share against expected EPS figures of $0.10. In fact, in the last four quarters, Ulta Beauty has beaten expectations three times, which is an excellent record.
The news slipped a bit from there, though, as revenue came in at $1.55 billion for the quarter. Great, except the consensus was expecting revenue of $1.56 billion. A pretty close match, though not quite a beat, so the impact of that news was negligible in either direction.
Lipstick on a Pig
While this quarter was an earnings beat for Ulta Beauty, and a near-match in revenue, there were undeniable downsides for the company. That $1.64 per share in earnings sounds good, certainly, but this time last year the company brought in $2.25 per share. That $1.55 billion in revenue also sounds good, until you consider that this time last year the company brought in $1.68 billion. The comparisons put Ulta Beauty clearly on the back foot.
Worse, the comparative decline is expected to continue. The company revealed that same-store sales had dropped 8.9% for the third quarter, though this may have a connection to ongoing government intervention in the form of lockdowns and store closures. There were also some unexpected costs that chipped in, including its recent move to suspend its operations in Canada, that reduced net income substantially.
A Minimal Shakeup From Analysts
Meanwhile, the analyst reaction is only slightly concerning. Stifel recently reiterated its “hold” recommendation on the company, suggesting that Ulta Beauty shares at their current price represented a lot more downside potential than upside.
Stifel was contradicted frequently on that front, however, as—based on our latest research—the company still has a consensus rating of “buy”. Moreover, it has had one for the last six months to one degree or another. In fact, the company last saw a “sell” recommendation six months ago, and that recommendation has since departed. The company currently stands at nine “hold” ratings and 16 “buy” ratings, which is just one “buy” rating less than the company was at a month ago, and again at three months ago.
Meanwhile, the price target is up substantially. Six months ago, it sat at $258.04. Three months ago, the price target bottomed out at $253.64, and only increased slightly a month ago to $253.92. Now, it's perched at $271.68. That's a little less than a 10% jump just in a month.
Even as Stifel held the line, several analysts improved targets, if not ratings. Five analysts increased their price targets today alone, including Credit Suisse and Robert W. Baird.
Still Looking Sharp
It would be easy to discount Ulta Beauty as being a company that depends on people being out and about. After all, what value is there in primping when you're forbidden by government mandate from leaving the house? The problem with that assessment is that there is still value in such activity, if only from a psychological standpoint; people feel better when they look good. Let's be honest: “people feeling better” is a prime motivator for behavior under normal conditions, let alone the conditions we're facing today.
Yes, same-store sales are down. But based on the revenue figures, a lot of those sales are still taking place, likely online. We've seen the value in improving online operations in the last several months—just look at how well Target (NYSE:TGT) did with its online operations—and we'll likely continue to see how online improves operations going forward. Ulta Beauty may not look as attractive as it did this time last year, but it's certainly done its part to keep looking sharp despite the situation we're all in currently.
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