Ulta Beauty Inc. (ULTA, Financial) experienced its largest drop since March 2020, as company leaders indicated a decrease in consumer interest for beauty products, affecting the stock performance of related companies as well.
The company's shares plummeted by up to 15% on Wednesday, following remarks at a JPMorgan Chase & Co. conference. Executives noted that current sales for the quarter are expected to be at the lower spectrum of their previously issued guidance for the first half of the year, citing ongoing sluggish sales trends.
Consequently, stocks of companies whose products are sold by Ulta also saw significant declines. Estee Lauder Cos. (EL, Financial) and Coty Inc. (COTY, Financial) experienced their most considerable drops since the year's start, while Elf Beauty Inc. (ELF, Financial) saw its steepest decline since October.
During the conference, Ulta's CEO, David Kimbell, highlighted a significant cooling in both mass and prestige product segments since the fourth quarter, which ended on February 3. He pointed out that the slowdown was somewhat unexpected in its timing and magnitude, attributing it to factors such as increased credit card debt and the resumption of student loan payments after a three-year hiatus, which have placed additional financial pressure on consumers.
Oppenheimer analyst Rupesh Parikh, who has a favorable outlook on Ulta, expressed surprise at the sales moderation, stating it is currently unclear whether this trend is a temporary setback.
After four months of gains, Illinois-based Ulta experienced a downturn in March following an earnings update that left investors wanting. Analysts have noted that achieving the company's full-year targets would require a significant pickup in sales in the latter half of the year. It is projected that Ulta's sales growth will be around 5% this fiscal year, marking its slowest in four years.
Despite the initial slow start, some analysts believe the beauty sector will remain robust, driven by innovation, new market entries, and enhanced marketing strategies to engage consumers. Olivia Tong of Raymond James maintains strong buy ratings on Ulta, Estee Lauder, and Elf, and an outperform rating on Coty, anticipating a return to a more normalized growth pattern in 2024 after years of exceptional expansion.
