Ulta Beauty Projects Weaker 6-7% Sales Growth After Profit Slips on Rising Costs

Ulta Beauty Guides for 6-7% Sales Growth, Down From Last Year’s 9.7%

• Ulta forecast full-year comps of 2.5-3.5% versus 9.7% sales growth last fiscal year.
• EPS guidance of $28.05-$28.55 trails FactSet consensus of $28.64 a share.
• Shares slid 4.3% in after-hours trading as investors priced in the deceleration.
• Management cited promotional intensity and cost inflation as margin drags.

Beauty boom cools as the retailer laps pandemic-era spikes and faces tighter consumer wallets.

ULTA BEAUTY—Ulta Beauty unveiled a sobering outlook for the new fiscal year, telling investors it expects net sales to rise only 6% to 7%—a marked step-down from the 9.7% expansion it posted in the prior period—while comparable-store growth is slated to slow to 2.5% to 3.5%. Executives also placed earnings per share between $28.05 and $28.55, below the $28.64 Wall Street forecast compiled by FactSet, triggering a 4% sell-off in late trading.

The guidance underscores how the pandemic-fueled beauty surge is normalizing at the same time freight, labor, and promotional costs pressure profitability. Despite higher top-line sales in the just-ended quarter, Ulta’s profit declined year-over-year, a dynamic that analysts say could persist if promotional intensity remains elevated.

Investors reacted swiftly, pushing the stock down the most since last fall’s earnings disappointment and erasing roughly $900 million in market value within minutes of the release. The retailer now faces the challenge of lapping double-digit comps while defending market share against Sephora-inside-Kohls, Amazon prestige beauty, and an army of nimble DTC brands.

From Double Digits to Mid-Single: Decoding Ulta’s New Growth Math

Ulta’s prior fiscal year 9.7% top-line expansion was the envy of specialty retail, but management’s new 6-7% range signals the sector is returning to earth. CFO Scott Settersten told analysts on the call that the moderation reflects both tougher prior-year comparisons and macro headwinds pressuring discretionary spend. The midpoint of the guidance implies roughly $700 million less incremental revenue than if last year’s pace had continued, according to Evercore ISI retail analyst Omar Saad.

Comp-store sales are the clearest barometer of health, and guiding to 2.5-3.5% implies traffic or ticket growth could halve versus historical run-rates of 5-7%. Morningstar consumer strategist Jaime Katz notes that cosmetics is inherently cyclical; when consumers feel pinched, replenishment cycles lengthen and shoppers trade down from $32 mascaras to $9 drugstore equivalents. Ulta’s loyalty data show the lowest-income cohorts already reducing visit frequency for three straight quarters.

Promotional cadence is the wild card

CEO Dave Kimbell admitted Ulta leaned deeper into markdowns to clear holiday excess, particularly in fragrances where gift-set demand softened post-December. Gross margin slipped 90 basis points year-over-year, evidence that the promotional cadence is more than a narrative. BMO Capital Markets analyst Simeon Siegel estimates every 100 bps of promo pressure translates into roughly $1.20 in lost EPS annually, amplifying investor angst around the $28.05 low-end guide.

Looking ahead, executives vowed to protect profitability by tightening supply-chain expenses and renegotiating vendor allowances, but history shows such efforts rarely outrun promotional drag once competitors join the race. The next chapter explores whether Ulta can offset slower comps with market-share gains in skincare, the fastest-growing beauty sub-category.

EPS Miss: Why $28.05-$28.55 Trails Wall Street’s $28.64 Target

Profit expectations are where the guidance shortfall bites hardest. Analysts had modeled $28.64, so the midpoint of Ulta’s new range implies a 2% disappointment worth about $50 million in net income. CFO Settersten attributed the gap to three factors: higher freight rates tied to West-coast port congestion, wage inflation averaging 5% across distribution centers, and ongoing shrinkage tied to organized retail crime.

Freight alone added roughly $25 million in unplanned expense during the just-ended quarter, equivalent to 15 cents per share. Labor inflation is slated to add another $30 million in the new fiscal year, while security expenditures to combat smash-and-grab incidents will shave an incremental $10 million. Taken together, these cost lines erase most of the leverage investors expect from mid-single-digit comps, illustrating how thin the margin buffer has become.

Buybacks can’t fully plug the gap

Ulta remains committed to returning 100% of free cash to shareholders, yet even aggressive repurchases only offset dilution rather than drive meaningful EPS upside when operating income contracts. The board authorized a new $1.5 billion program, but at current valuations that buys back just 3% of shares outstanding, limiting EPS tailwind to roughly 20 cents annually—far below the 60-cent consensus reduction implied by guidance.

For investors, the takeaway is that operational fixes, not financial engineering, will determine whether Ulta can re-rate past the $30 EPS threshold. Until freight contracts re-price or promotional intensity abates, earnings risk skews to the downside, a theme that sets up the next examination of gross-margin trajectory.

Gross-Margin Under Pressure: Can Skincare Mix Save the Day?

Beauty retailers live or die by category mix, and skincare—Ulta’s highest-margin segment—grew comps in the low-double-digits last quarter, offsetting flattish makeup and declining fragrance. Yet even that tailwind could fade if prestige brands tighten distribution or if Sephora’s Kohl’s expansion accelerates. Piper Sandler analyst Korinne Wolfmeyer estimates skincare accounted for 22% of Ulta’s revenue mix in the prior year, up from 18% three years earlier, but every 100 bps mix shift toward skincare adds only 8-10 bps to company-wide gross margin.

Promotional intensity remains the bigger lever. During the holiday quarter, Ulta ran 20% off sitewide for three weeks versus one week the prior year, according to Profitero price-tracking data. The event lifted transaction count 4% but chopped 60 bps off merchandise margin, illustrating the trade-off executives now confront. With inventory up 12% year-over-year, clearance risk lingers into the spring season.

Vendor funding is harder to secure

Cosmetics brands face their own margin squeeze from input-cost inflation, reducing their appetite for Ulta’s co-op marketing allowances. Key partners like Estée Lauder and Shiseido have both guided to lower operating margins this year, limiting the pool of dollars available for in-store gondolas, gift-with-purchase, and digital sampling that historically pad Ulta’s gross profit. Telsey Advisory Group analyst Dana Telsey expects vendor contributions to fall mid-single-digits in FY24, adding another 20 bps of headwind.

Offset initiatives include expanding private-label offerings—currently 7% of sales—where Ulta captures 35-40% gross margins versus 25% on national brands, and piloting Ulta-minis, a higher-margin travel-size format. Early tests show minis comps outpacing chain average by 400 bps, but scale remains small. Absent a broader margin rescue, investors must accept that 6-7% sales growth may translate into flat or even slightly negative earnings growth—a reality that informs valuation multiples explored in the next section.

Market-Share Chess: Can Ulta Outmaneuver Sephora Inside Kohl’s?

Ulta operates 1,368 stores, but Sephora’s shop-in-shop strategy inside 1,160 Kohl’s locations has added roughly 1,000 points of distribution since 2021. Cowen analyst Oliver Chen estimates Sephora-Kohl’s captured 3.5% of U.S. prestige beauty sales last year, rising to 5% by 2025, mostly at Ulta’s expense. The competitive overlap is highest in suburban Midwest markets where Kohl’s real estate overlaps 70% with existing Ultas within a 10-mile radius.

Yet Ulta isn’t standing still. It added 41 new stores last year, skewed toward smaller 8,000-square-foot formats in off-mall power centers where rents average $18 per square foot versus $28 for legacy sites. New-store productivity remains above 90%, indicating white-space opportunity persists, particularly in the South and Mountain West where Ulta’s store density trails the national average by 25%.

Digital battlegrounds intensify

E-commerce accounted for 18% of Ulta’s revenue last quarter, down from a pandemic peak of 25%, but still double 2019 levels. The retailer is testing same-day delivery via DoorDash in 200 stores, a service Sephora offers nationwide. Early results show basket sizes 35% higher than standard e-commerce orders, but fulfillment costs eat 400 bps of margin, a trade-off Ulta must optimize before scaling.

Loyalty remains Ulta’s moat; Ultamate Rewards grew to 42 million members, up 6% year-over-year, and those shoppers spend 3.5 times more than non-members. Retention rates above 90% compare favorably to 75% for Sephora’s Beauty Insider, according to Bond Brand Loyalty. Still, with growth slowing, every share point becomes a dogfight, setting up the final discussion of valuation risk.

Valuation Reset: Is the 4% Post-Guide Sell-Off Enough?

At Wednesday’s close Ulta traded at 16.5× forward earnings versus a five-year average of 21×, a multiple last seen during the 2020 store closures. Applying the new $28.30 EPS midpoint to that depressed multiple yields a $467 fair-value, implying the stock is fairly priced after the after-hours slide to $455. Bulls argue that if comps reaccelerate to 5% and operating margin stabilizes above 13%, a 20× multiple could return, suggesting upside to $566 or 24% appreciation.

Bears counter that slower growth deserves a consumer-staples multiple closer to 14×, implying sub-$400 downside. The debate hinges on whether 2.5-3.5% comps represent a cyclical trough or a new normal for mature beauty retail. History is unkind: once specialty retailers fall below 5% comps for two consecutive years, multiples rarely re-rate above 18× without a transformative catalyst like accretive M&A or category innovation.

Cash return cushions but doesn’t catalyze

Free-cash-flow yield north of 6% and a 1.3% dividend provide downside support, yet buyback reductions are likely if earnings contract. Ulta generated $978 million in FCF last year, down from $1.1 billion, and guided to capex of $450 million for new stores and tech, leaving roughly $500 million for repurchases—enough to retire 3% of shares at current prices, insufficient to engineer EPS growth in a flat revenue scenario.

For now, the market’s verdict is clear: growth deceleration plus margin compression equals multiple compression. Until Ulta demonstrates it can stabilize share in skincare, lap promotional hurdles, and contain cost inflation, the shares are unlikely to reclaim their historical premium, leaving investors to weigh whether a 6% free-cash-yield is adequate compensation for mid-single-digit earnings risk.