Ulta Beauty Fades Amid ‘Headline Shock’ of CEO Departure

Ulta Beauty falls after announcing a sales outlook that misses estimates and an upcoming leadership change that takes investors and analysts by surprise.
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Ulta Beauty  (ULTA) - Get Report shares faded on Friday after the beauty retailer announced a sales outlook that missed estimates and an upcoming change of leadership that took both investors and analysts who cover the company by surprise.

Ulta Beauty was down nearly 8% in premarket trading after the Bolingbrook, Ill.,-based company reported better-than-expected fourth-quarter results but sales that missed forecasts - and also named company President Dave Kimbell to succeed current CEO Mary Dillon effective later this year.

Analysts were particularly surprised by Dillon’s plans to step down from the CEO role in June, calling her an esteemed and a strong leader.

BMO analyst Simeon Siegal said Ulta’s fourth-quarter sales and margin beat was overshadowed by news that “universally-respected” Dillon is stepping aside, along with what will probably prove to be “conservative” full-year guidance. He raised his price target to $310 from $265 though left his market perform rating on the stock.

Jeffries analyst Stephanie Wissink wrote the departure of “esteemed” Dillon as CEO is a “headline shock,” with the timing “years earlier than expected.” That, coupled with uncertainty over how demand for beauty products will recover after the pandemic, prompted her to keep her price target at $295. She has a hold rating on the shares.

Stifel analyst Mark Astrachan called Dillon’s role transition “negative” for Ulta shares, given she is “rightly viewed by investors as a strong leader, with company sales and its share price up meaningfully” since she became CEO. He raised his price target to $285 from $250, though also maintained his hold rating.

Ulta Beauty shares had risen some 21% so far this year amid stronger-than-expected demand for its beauty products, which include cosmetics, skin care brands and fragrances, as well as plans to expand into Target  (TGT) - Get Report stores. 

The company last fall revealed plans to launch shop-in-shops at Target locations, though TheStreet’s Jim Cramer questioned Dillon about the program.

At last check, shares of Ulta Beauty were down 6.8% at $323.86.