Ulta Beauty Earnings: Guidance Lowered, but Impact Not Too Severe; Shares Fairly Valued

Narrow-moat Ulta Beauty opened 2024 with a blemish as a loss of market share in prestige beauty resulted in lowered guidance for the year. We think the firm is feeling the impact of the addition of Sephora shops in hundreds of no-moat Kohl’s stores as well as the willingness of more luxury beauty brands to sell through wide-moat Amazon. Despite these pressures, we think Ulta’s competitive advantages, such as its large selection of merchandise and more than 43 million loyalty members, will allow for mid-single-digit percentage sales growth and 14% operating margins in the long run.