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

Ulta Beauty’s ( ULTA ) shine may be coming to an end.

After the market closed on Thursday, the beauty retailer reported second-quarter results that missed estimates across the board. Revenue was $2.55 billion, compared with $2.62 billion estimated. 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 don’t believe these results reflect the strong commitment to our brand, the strength of our operating model or the performance they know we can deliver over the long term,” he said.

He pointed to several factors influencing Ulta, including post-pandemic demand normalization, more value-conscious consumers and a changing market.

“There are many more places to buy beauty, especially prestige beauty, with over 1,000 new distribution points opening in the last 3 years. As a result, our market share continues to be challenged, particularly in prestige beauty Kimbell said.

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

Revenue is expected to be between $11.0 billion and $11.2 billion, down from the previous range of $11.5 billion to $11.6 billion.

Kimbell said the team is “acting aggressively” in five areas: strengthening the assortment, expanding social relevance using influencers and creators, improving the digital experience, leveraging its loyalty program and developing its promotional activities.

Shares were down 7% in after-hours trading. The stock is down about 25% since the start of the year and more than 30% in the past six months.

Analysts had feared these results as consumers become more careful about spending, while competition increases and retail theft remains a problem.

“We believe beauty demand could come under pressure in 2024 as consumer budgets remain strained after two years of high rates. We believe consumers will lean towards shopping closer to recharge, shopping for solutions based on innovation and leveraging consumer rewards,” CFRA analyst Ana. Garcia wrote in a note to clients.

Ahead of the results, UBS analyst Michael Lasser predicted that Ulta Beauty would again cut its guidance for 2024. However, “ULTA stock still carries too much negativity on the long-term growth and margin prospects for this business,” he he said.

The story continues

“We don’t view ULTA’s model as broken or structurally disadvantaged.” Rather, it’s “digesting several years of huge category growth” and increased competition, including online players like Amazon and TikTok, he added.

According to a report from foot traffic analytics platform Placer.ai, Ulta Beauty is still seeing a huge increase in foot traffic 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 Q2 worth about $266 million in late June, Edwin reported Novel from Yahoo Finance.

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.”

Shares of Ulta are up more than 50% over the past five years, benefiting from a post-Covid beauty and wellness boom. However, it underperformed in the broader market; The S&P 500 is up more than 90% over the same period.

Earnings Breakdown

Here’s what Ulta Beauty reported in Q2, compared to what Wall Street expected, according to the Bloomberg consensus.

• Income: $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 DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email them at [email protected].

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