Ulta Beauty reports disappointing earnings after Warren Buffett’s Berkshire Hathaway takes stake

Ulta Beauty’s (ULTA) glow-up period may have come to an end.

The cosmetics retailer reported second-quarter results Thursday after the market closed that missed expectations across the board. Revenue came in at $2.55 billion, compared with an expected $2.62 billion. Earnings per share of $5.30 also fell short of the $5.50 expected.

CEO Dave Kimball acknowledged the disappointing results on the earnings call.

“We do not believe these results reflect the strong association with our brand, the strength of our operating model, or the performance we know we are capable of delivering over the long term,” he said.

He highlighted some of the factors impacting Ulta, including normalizing demand post-pandemic, increased consumer awareness of value, and a shift in the market.

“There are many more places to buy cosmetics, especially luxury cosmetics, with over 1,000 new points of distribution opening in the past three years. As a result, our market share continues to be challenged, especially in the luxury cosmetics space,” said Kimble.

Same-store sales fell 1.2% year over year, a stark contrast to increases of 8% and 14.4% in 2023 and 2022, respectively. Ulta now expects same-store sales to decline 2% to 0% for fiscal 2024, compared to previous guidance of a 2% to 3% increase.

The company expects revenue to be between $11 billion and $11.2 billion, down from the previous range of $11.5 billion to $11.6 billion.

Kimball said the team is “taking strong action” in five areas: enhancing the assortment, expanding social relevance using influencers and creators, enhancing the digital experience, leveraging the loyalty program, and building out its promotional activities.

The company’s shares fell 7% in after-hours trading. The stock has lost about 25% since the beginning of the year and more than 30% in the past six months.

Analysts feared the results were due to consumers becoming more conscious about spending amid increased competition and the ongoing problem of theft in the retail sector.

“We believe beauty demand could come under pressure in 2024 as consumer budgets continue to be squeezed after two years of high prices,” CFRA analyst Ana Garcia wrote in a note to clients. “We believe consumers will tend to shop near refills, shop for innovation-led solutions, and take advantage of consumer rewards.”

Ahead of the results, UBS analyst Michael Lasser expected Ulta Beauty to again cut its 2024 outlook. However, he said, “Ulta shares still price in a significant amount of negative sentiment regarding the long-term growth and margin prospects of this business.”

The story continues

“We don’t view the ULTA model as broken or structurally flawed,” he added. Rather, it “accommodates several years of tremendous growth in the category” and increasing competition, including online players like Amazon and TikTok stores.

According to A report from pedestrian analytics platform Placer.ai, Ulta Beauty continues to see significant foot traffic growth compared to the rest of the beauty and wellness industry.

On Aug. 14, Berkshire Hathaway (BRK-A, BRK-B) disclosed in a regulatory filing that it bought 690,106 shares of Ulta in the second quarter, worth an estimated $266 million as of the end of June, Yahoo Finance’s Edwin Roman reports.

At the time, Simon Siegel, managing director of BMO Capital Markets, told Yahoo Finance that the move “was a huge endorsement for Ulta Beauty.”

Ulta shares have risen more than 50% over the past five years, riding a boom in the beauty and wellness industry after the Covid-19 pandemic. However, it has underperformed the broader market, with the S&P 500 up more than 90% over the same period.

Earnings details

Here’s what Ulta Beauty reported in the second quarter, compared to Wall Street expectations, according to Bloomberg consensus.

• profit: $2.55 billion compared to $2.62 billion

• Adjusted earnings per share: $5.30 compared to $5.49

• Same store sales growth: -1.2% vs. +1.32%

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Brooke DePalma is a senior reporter at Yahoo Finance. You can follow her on Twitter at @Brooke De Palma Or email her at bdipalma@yahoofinance.com.

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