Ulta Beauty (NASDAQ:ULTA) shares dropped more than 8% in premarket trading Friday after the cosmetics retailer issued a fiscal outlook that came in slightly below expectations, even as it reported fourth-quarter results that beat Wall Street forecasts.
The company said it expects fiscal 2027 earnings of $28.05 to $28.55 per share, compared with analyst projections of $28.57. Ulta also projected net sales growth of 6% to 7% and earnings growth of roughly 9.4% to 11.4%.
Comparable sales are expected to rise 2.5% to 3.5%, according to the company’s guidance.
Raymond James analyst Olivia Tong said the outlook “captured consensus expectations, though we believe buyside expectations were higher, and when combined with elevated spend this quarter, drove in our view the after-market decline in shares.”
“Should shares trade lower, we view this as a buying opportunity and reiterate our Strong Buy rating, reflecting improving sales and ability to recapture margin,” she added.
Fourth-quarter results beat expectations
For the fourth quarter, Ulta reported earnings of $8.01 per share, exceeding analyst estimates of $7.93 per share. Revenue reached $3.9 billion, topping expectations of $3.81 billion.
Comparable sales increased 5.8% during the quarter, supported by a 4.2% increase in average ticket size and a 1.6% rise in transaction volumes.
Net sales rose 11.8% year over year, driven by stronger comparable sales, the acquisition of Space NK, and contributions from newly opened stores.
Morgan Stanley analyst Simeon Gutman said near-term upside for Ulta “depends on ULTA’s ability to consistently sustain comp outperformance and provide clearer visibility on disciplined cost management to drive further profitability.”
Margins face some pressure despite higher revenue
Ulta’s gross profit increased 11.2% to $1.5 billion, although the gross margin edged slightly lower to 38.1% of sales from 38.2% a year earlier.
The company said the modest margin decline was mainly due to an unfavorable sales mix and higher store-related expenses, partly offset by lower inventory shrink and improved supply chain efficiency.
Meanwhile, selling, general and administrative expenses climbed 23% to $1 billion, reflecting higher corporate overhead tied to strategic investments, increased marketing spending and higher incentive compensation.