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Ulta Beauty (ULTA) Gears Up for Q2 Earnings: Things to Note

Ulta Beauty, Inc. ULTA is likely to register a decline in the top and bottom lines when it reports second-quarter fiscal 2020 numbers on Aug 27. The Zacks Consensus Estimate has dropped 13.6% over the past 30 days to 19 cents per share. This also suggests a slump of 93.1% from earnings of $2.76 reported in the prior-year period. However, Ulta Beauty delivered a negative earnings surprise in the last reported quarter. Further, this beauty retailer has a trailing four-quarter negative earnings surprise of 86.8%, on average.

The Zacks Consensus Estimate for revenues is pegged at almost $1,277 million, indicating a decline of almost 24% from the prior-year quarter’s reported figure.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

Key Factors to Note

Ulta Beauty was affected by coronavirus-led store closures in the last reported quarter. Though stores have reopened, their temporary closure for part of the quarter is likely to have negatively impacted results. On the positive side, management in the last earnings call said that it was seeing greater-than-expected sales in reopened stores. Also, Ulta Beauty’s e-commerce channel has remained strong, especially amid the pandemic. Markedly, e-commerce sales accelerated and more than doubled in the first quarter as the company was operating as a digital-only business. Apart from this, it has been benefiting from the Ultamate Rewards loyalty program, thanks to its excellent marketing and merchandising endeavors.

However, higher costs of investments toward digital channels, salon services, infrastructure, personalization efforts, brands and initiatives to enhance customer experience have been resulting in higher corporate overheads. In fact, we note that Ulta Beauty has been struggling with rising selling, general and administrative expenses for a while, which is a limiting factor for the company’s operating margin.

Apart from this, softness in the makeup category remains a headwind for Ulta Beauty. The U.S. beauty market has been struggling with the soft makeup sales trend due to the absence of innovation and newer products in the makeup category. In its first-quarter earnings call, management stated that it expects challenges in the makeup category to persist in the near term due to increased social distancing, usage of masks and delayed innovation for this year.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Ulta Beauty this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ulta Beauty currently has a Zacks Rank #3 and an Earnings ESP of -84.46%.

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