Ulta's weak sales outlook 'could prove conservative': Analyst
Ulta Beauty (ULTA) shares are falling Friday morning despite the company beating earnings estimates in its latest quarterly report. The company's weaker-than-expected guidance has weighed heavily on the stock's performance. To provide insight into investor outlook, Canaccord Genuity Managing Director Susan Anderson joins Yahoo Finance Live.
Anderson acknowledges that the bottom line was "a little bit light" for investor liking, and notes that investments and promotions are not as favorable as investors would prefer. However, she highlights that "the beauty business remains very strong," positioning Ulta to benefit from the industry's robust performance. The analyst suggests that the weak sales guidance "could prove conservative" thanks to the "newness" of the business.
"Newness," drives 20 to 30% of Ulta sales and involves introducing new brands and new products from existing brands, Anderson explains.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
BRAD SMITH: Shares of Alta sinking premarket after issuing softer guidance than the Street was hoping for. The beauty retailer-- the beauty retailer saw heavy promotion eat into margins as cautious consumers continue to pull back on some discretionary purchases.
Joining us now on this, we've got Susan Anderson, who is the Canaccord Genuity managing director. Susan, great to see you here this morning, and thanks for taking some time here ahead of the opening bell. You had just boosted your price target, and your buy rating here on the stock maintains. So ultimately what are you looking at here within Ulta and continuing to look out into the future to see some strength?
SUSAN ANDERSON: Yeah, so they gave, you know, pretty good top line guidance for a 4% to 5% comp, but it was the bottom line that was a little bit light versus where the Street was at as some investments that they're making is still weighing on SG&A this year, and then also the promotions are still going up a little bit. Still very rational, though nowhere near COVID-- you know, pre-COVID levels. So, you know, I think the beauty business still remains very strong, and Ulta should benefit from that.
Also, last year they didn't have as much newness as they did in the prior year, but this year it sounds like they're going to ramp up that newness again, which should help to keep those sales pretty strong. So, you know, we still feel good about their performance this year, and potentially, you know, their guidance could prove conservative.
SEANA SMITH: Susan, how much do you think the new product lines, the launches that we're expecting here is going to add to Ulta's top line?
SUSAN ANDERSON: Yeah, I think it's definitely going to be very helpful. They just recently rolled out Charlotte Tilbury and Sol de Janeiro, which are starting to ramp in the stores now. So I think that will be helpful. And then in the back half they talked about they have more newness coming out. So I think typically newness is about 20% to 30% of Ulta's sales. Last year, I think that newness was towards the lower end of that range. So this year I think it's going to be much stronger, and it's going to be very important to the sales.
BRAD SMITH: You know, it's really interesting. This is perhaps the third or fourth conversation where I've heard this word newness tossed around quite a bit here, and we hear it with some of the athletic footwear and apparel companies especially. What is newness? Is it a result of innovation and research and development that these companies are doing, or is it just a matter of rebranding something that may have been popular that they're looking to resurface again?
SUSAN ANDERSON: No, it's really-- so it could be anywhere from a new brand that they're launching in stores such as this Charlotte Tilbury, or it could be new products coming from existing brands. So it's kind of all of the above, but it's not necessarily just repackaging or rebranding something that was already there. It's really something that is new that the consumer is looking for that's driving them into that store.
BRAD SMITH: Thank goodness, Susan, because I didn't want to be out here getting duped by something that I might have bought that's already in the closet or in the bathroom shelf. So thank you for that.
SUSAN ANDERSON: Sure.
