Ulta Beauty (ULTA): Soft guidance and CEO change do not go down well with investors

Shares of Ulta Beauty Inc. (NASDAQ: ULTA) were down over 8% on Friday. The stock has gained 10% since the beginning of this year. The company reported its fourth quarter 2020 earnings results a day ago, beating market estimates, but provided guidance for the full year of 2021 that came below analysts’ projections. Ulta also announced that President Dave Kimbell will succeed Mary Dillon as Chief Executive Officer. It appears these two points have not gone down well with investors as the stock took a hit and is yet to recover.

Quarterly performance

Net sales fell 4.6% to $2.2 billion versus the year-ago period while comparable sales dropped 4.8%. Adjusted EPS amounted to $3.41 compared to $3.83 last year. Despite the year-over-year declines, the top and bottom line numbers were better than analysts’ projections.

Trends

The company’s store traffic remained challenged through 2020 but its digital channel witnessed significant growth. In Q4, the ecommerce business grew over 70%. To meet the increased demand in ecommerce, Ulta expanded its fulfilment capabilities by opening a new fulfilment center, introducing curbside pickup and expanding its ship-from-store capabilities.

Ulta managed to increase its market share across most of its major categories. The COVID-19 pandemic drove an increase in self-care and wellness and these trends drove customer interest across both new and established brands. The fragrance and bath categories witnessed strong double-digit comp growth during the quarter while skincare delivered a low double-digit comp.

Haircare saw a slight drop in comp sales while in the makeup category, comp sales were negative as the usage of masks continues and occasions for wearing makeup remain limited. The services business continues to be impacted by the pandemic with sales dropping over 40% in Q4 due to lower number of transactions.

Outlook

For the full year of 2021, Ulta expects net sales to range between $7.2-7.3 billion and comparable sales growth to range between 15-17%. The company expects comps to grow in the low to mid-30s range during the first half of 2021 and then moderate to a low to mid-single digits range in the second half.

Ecommerce penetration is expected to be in the low to mid-20s for the year. The company expects EPS to range between $8.85-9.30 which is lower than what analysts had projected for the year.  

Ulta expects to open approx. 40 net new stores, remodel 11 stores and relocate approx. 10 stores. The company had to defer its new store openings in 2020 due to the pandemic and therefore more than half of its new stores are now expected to open in the first quarter of 2021.

Click here to read the full transcript of Ulta Beauty’s Q4 2020 earnings conference call