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

Ulta Beauty's ( ULTA ) glow-up may be coming to an end.

On Thursday after market close, the beauty retailer reported second quarter results that missed estimates across the board. Revenue came in at $2.55 billion, compared to $2.62 billion expected. Earnings per share of $5.30 also fell short of the $5.50 expected.

CEO Dave Kimbell acknowledged the disappointing results in an earnings call.

"We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term," he said.

He outlined a few factors weighing on Ulta, including normalizing demand post-pandemic, more value-conscious consumers, and a shift in the marketplace.

"There are significantly more places to buy beauty, especially prestige beauty, with more than 1,000 new points of distribution opened in the last three years. As a result, our market share continues to be challenged, particularly within prestige beauty," Kimbell said.

Same-store sales declined 1.2% year over year, a stark contrast to the 8% and 14.4% increases seen in 2023 and 2022, respectively. Ulta now projects same-store sales to fall 2% to 0% for fiscal year 2024, compared to the previous guidance of a 2%-3% jump. It expects revenue to come in between $11.0 billion and $11.2 billion, less than the previous range of $11.5 billion to $11.6 billion.

Kimbell said the team is "aggressively taking actions" in five areas: strengthening assortment, expanding social relevance using influencers and creators, enhancing the digital experience, leveraging its loyalty program, and building up its promotional activities.

Shares fell 7% in after-hours trading. The stock has shed roughly 25% since the start of the year and more than 30% in the last six months.

Analysts feared these results as consumers are becoming extra mindful about spending while competition is increasing and retail theft remains an issue.

"We think beauty demand may come under pressure in 2024 as consumer budgets remain stressed after two years of elevated rates. We think consumers will lean into shopping closer to refill, shopping for innovation-led solutions, and leveraging consumer rewards," CFRA analyst Ana Garcia wrote in a note to clients.

Prior to the results, UBS analyst Michael Lasser predicted that Ulta Beauty would once again lower its 2024 guidance. However, "ULTA shares are still pricing in too much negativity on the long-term growth and margin prospects for this business," he said.

"We don't view ULTA's model as broken or structurally disadvantaged." Rather, it is "digesting several years of outsized category growth" and increased competition, including online players like Amazon and TikTok shops, he added.

According to a report from foot traffic analytics platform Placer.ai, Ulta Beauty is still seeing outsized foot traffic growth compared to the rest of the beauty and wellness industry.

On Aug. 14, Berkshire Hathaway ( BRK-A , BRK-B ) revealed in a regulatory filing that it bought 690,106 Ulta shares in Q2, worth roughly $266 million as of the end of June, Yahoo Finance's Edwin Roman reported.

At the time, BMO Capital Markets managing director Simeon Siegel told Yahoo Finance that the move provided "a big stamp of approval for Ulta Beauty."

Ulta's stock is up more than 50% in the past five years, benefiting from a boom in beauty and wellness post-COVID. However, it has underperformed the broader market; the S&P 500 is up more than 90% during the same period.

The earnings breakdown

Here's what Ulta Beauty reported in Q2, compared to Wall Street expected, per Bloomberg consensus.

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BrookeDiPalma