Ulta Beauty Lower After Adjusted Net Beats, Revenue in Line

Ulta  shares fell after the cosmetics chain reported adjusted profit beat Wall Street estimates, revenue was in line, and gross margin narrowed.
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Ulta Beauty  (ULTA) - Get Report shares were lower after the cosmetics chain reported fiscal-third-quarter net income fell 41% on 7.8% lower revenue.

The Bolingbrook, Ill., retailer's adjusted profit beat Wall Street estimates while revenue was in line with expectations. 

For the quarter ended Oct. 31 Ulta Beauty earned $1.32 a share compared with $2.25 a share in the year-earlier quarter. Adjusted earnings for the latest period were $1.64 a share.

Asset-impairment and restructuring costs, related mainly to the suspension of its Canadian expansion, reduced reported net income by 32 cents a share, Ulta said.

Revenue fell to $1.55 billion from $1.68 billion.

A survey of analysts by FactSet produced consensus estimates of GAAP earnings of $1.51 a share, or an adjusted $1.50, on revenue of $1.56 billion.

Same-store sales were down 8.9%. The FactSet survey was calling for a drop of 9.6%.

Gross-profit margin for the quarter narrowed 2 percentage points to 35.1%.

At last check Ulta Beauty shares were trading down 5.4% at $274. They closed the regular Thursday trading session up 2.7% at $289.53.

Ulta has more than doubled off its 52-week low above $124, set in mid-March. It had touched a 52-week high above $304 just five weeks before that, in mid-February.

During the fiscal third quarter the company repaid an $800 million drawdown from its $1 billion credit facility. It had protectively drawn the funds in Q1 due to uncertainty tied to the pandemic.

Ulta declined to provide financial guidance. 

It said it "began the fourth quarter with nearly all stores open for retail. However, as covid-19 prevalence increases, market-specific government restrictions may also increase, resulting in reduced operating hours, limitations on in-store capacity, and in some cases, mandated store closures."

Ulta Beauty said recently that next year it would launch its products in shop-in-shops at Target,  (TGT) - Get Report the Minneapolis-based retailing giant.

The plan is to create 1,000-square-foot shop-in-shops for Ulta next to Target's beauty sections.

On the Nov. 11 "Mad Money" program, TheStreet Founder Jim Cramer quizzed Ulta Chief Executive Mary Dillon about the shop-in-shops program.

Dillon said that the new Target locations will have the look and feel of the main Ulta stores, with curated selections of brands and consultation areas. The shop-in-shops will be staffed by Target employees who've been trained by Ulta, she said.

Cramer asked about culture fit and Dillon said that both companies share a preference for what she called "conscious beauty," including clean ingredients and sustainable packaging.

And she dismissed the idea that the shop-in-shops would cannibalize Ulta's current locations, saying that the store maps for the two companies don't overlap much.

On Nov. 24 Barron's reported that Jefferies analyst Stephanie Wissink cut her rating on Ulta to hold from buy while affirming a $300 price target.

The paper reported that the analyst is expecting consumers to shop online because of the pandemic. And the sales those orders generate tend to have thinner margins than those from stores, the paper reported.

In addition, Wissink's surveys of consumers found that they plan to spend less on beauty products than they did a year earlier, a signal that the pandemic might hurt consumer spending longer than the bulls on the stock hope.

The analyst reminded investors that while they should be optimistic about the recent vaccine news, the vaccines might not reach the broad population for more than nine months, Barron's reported.