TD Cowen maintained a Hold rating on Ulta Beauty (NASDAQ: NASDAQ:ULTA) with a steady price target of $390.00. The firm's stance comes after the company's recent announcement, which included a reiteration of its current guidance but also a reduction in its long-term forecast.
Ulta now expects long-term operating margins of 12% and net sales growth of 4%-6%, a decrease from the previously projected 14-15% and 5%-7%, respectively. This adjustment has been perceived as a slight disappointment to expectations from both the Street and buy-side analysts.
Despite the lowered long-term outlook, Ulta Beauty has raised its store expansion goals, planning to increase its number of stores to 1,800 from the previous range of 1,500-1,700. This change reflects a higher annual net opening rate of 60-65 stores, up from 50. The expansion is attributed to a focus on opening more small-format stores, which currently make up a minor portion of Ulta's overall store base.
Financial sensitivities discussed by the firm indicate that a 12% operating margin and 1% comparable store sales increase next year could result in a fiscal year 2025 earnings per share (EPS) of $22.70. This figure falls 8% short of the Street's expectation of $24.77 per share.
Additionally, a 10 basis point change in the operating margin is estimated to affect the EPS by approximately 20 cents. Using the implied FY25 EPS of $22.70 and applying a forward price-to-earnings (P/E) multiple range of 16-18x yields a stock price range of $363 to $409. This represents a potential downside of 1% to an upside of 11% relative to Tuesday's closing price of $369.
The company's guidance reiteration suggests that second-half comparable store sales could range from a decline of 4% to flat performance. This forecast, along with the revised long-term outlook and strategic updates, will be key factors for investors monitoring Ulta Beauty's stock performance going forward.
ULTA Beauty has announced new long-term financial goals commencing in 2026, including net sales growth of 4%-6%, operating margins of 12.0%, and low-double digit growth in earnings per share (EPS). As part of its growth strategy, the company plans to open over 200 new stores within the next three years, aiming to surpass 1,800 locations in the long term. ULTA Beauty also revealed a new $3 billion share repurchase authorization, replacing its previous program initiated in 2024.
Analysts' reactions to these developments have varied. DA Davidson has maintained a Buy rating, suggesting that the lowering of estimates could set a more achievable target for ULTA Beauty. Citi, on the other hand, has reiterated a Neutral rating following the company's revised financial goals. Evercore ISI and Baird have maintained an Outperform rating, while Piper Sandler and TD Cowen have expressed caution due to potential challenges, with TD Cowen reducing its price target to $390.
InvestingPro Insights
To complement the analysis provided by TD Cowen, InvestingPro data offers additional insights into Ulta Beauty's financial position. The company's market capitalization stands at $16.82 billion, with a P/E ratio of 14.33, indicating that the stock is trading at a relatively modest valuation compared to its earnings. This could be seen as an opportunity for investors, especially considering the recent stock price decline of 24.59% year-to-date.
InvestingPro Tips highlight that Ulta Beauty operates with a moderate level of debt and has liquid assets exceeding short-term obligations, which aligns with the company's ability to fund its ambitious store expansion plans. Additionally, management has been aggressively buying back shares, as evidenced by the newly announced $3.0 billion share buyback program mentioned in the article.
It's worth noting that while Ulta Beauty has revised its long-term operating margin forecast downward to 12%, the company's current operating income margin stands at a healthy 13.91% for the last twelve months. This suggests that the company is currently performing above its new long-term target, which may provide some cushion as it implements its expansion strategy.
For investors seeking more comprehensive analysis, InvestingPro offers 6 additional tips for Ulta Beauty, providing a deeper understanding of the company's financial health and market position.
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