Ulta Beauty
reports earnings after the closing bell on Thursday, and with cosmetics still selling, results should be strong.
Ulta
(ticker: ULTA) is expected to report first-quarter earnings of $6.89 a share on revenue of $2.62 billion. That’s a jump from the same period last year, when the beauty retailer reported earnings of $6.30 a share on revenue of $2.35 billion.
Shares of Ulta, a recent Barron’s stock pick, have had a solid run, jumping 37% in the past 12 months and 3% so far this year to trade around $485. The stock’s performance can be attributed to the company’s consistent beat-and-raise quarters, as customers continue to shop for beauty products despite continued uncertainty about the economy’s path.
“Strong consumer demand and outstanding execution by our teams fueled broad-based strength across our business,” Chief Executive David Kimbell said on the company’s last earnings call in March.
And even though several retailers have warned of a slowdown in consumer spending, financial results from the beauty brand E.l.f. could be evidence that Ulta is well-positioned to buck the trend.
E.l.f. Beauty
(ELF) on Wednesday posted robust earnings and revenue that crushed estimates, and provided full-year guidance that far outpaced Wall Street’s expectations. While some retailers like
Target
(TGT) and
Lowe’s
(LOW) are warning of a buyer slowdown, consumers seem to still want to shop for their favorite beauty products.
“We think its [Ulta’s] comp growth remained strong driven by solid trends in both transactions and ticket growth,” UBS analyst Michael Lasser wrote in a research note on May 11. “While consumers’ interest in makeup products has been picking up, self-care categories continue to perform well too.”
Lasser rates the stock as a Buy with a $640 price target.
Sales of beauty products have historically performed well during economic downturns. This phenomena is known as the “lipstick index,” and refers to the trend where makeup users continue to buy more affordable luxuries, even when their wallets are being pinched.
But there is room for concern. Inflation is still historically high, and there are clear signs that consumers are feeling the pressure. The University of Michigan recently said that May’s preliminary index of consumer sentiment fell to the lowest reading since November 2022.
Oppenheimer analyst Rupesh Parikh cut his price target on Ulta stock to $575 from $600 on May 19, but maintained his Outperform rating.
“In contrast to prior quarters, we see limited EPS upside potential amidst an aggressive investment agenda, a slightly more promotional beauty backdrop, and a weakening retail discretionary landscape,” he wrote in a research note at the time.
Write to Angela Palumbo at angela.palumbo@dowjones.com
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