Image Source: Unsplash

Ulta Beauty, Inc. (ULTA - Free Report) is likely to register a top and bottom-line decline when it reports third-quarter fiscal 2024 earnings on Dec. 5. The Zacks Consensus Estimate for revenues is pegged at $2.48 billion, implying a 0.3% decrease from the prior-year quarter’s reported figure. The consensus mark for earnings has remained unchanged in the past 30 days at $4.45 per share, indicating a 12.2% decline from the figure reported in the year-ago quarter. ULTA has a trailing four-quarter earnings surprise of nearly 3%, on average.

Factors Likely to Influence ULTA’s Upcoming Results

Ulta Beauty has been facing challenges as shifting consumer behavior toward value-driven spending, coupled with rising competition from new beauty distribution channels, is eroding its market share. The company's transition to a new Enterprise Resource Planning system has also caused operational disruptions, and promotional efforts have failed to drive expected in-store sales. 

A key issue is the slowing growth in the beauty category, with U.S. beauty sales increasing by just 3% in the first half of 2024. This normalization, after years of rapid gains, has hit the company hard, particularly as inflation and economic uncertainties push consumers to prioritize value over premium products. The pressure from competitors in the prestige beauty segment has further impacted the company’s ability to maintain its market share. Factors like these raise concerns for the quarter under review. Our model projects a comparable sales decline of 1.9% for the quarter under review.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

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

Soft merchandise margins and elevated SG&A costs are another area of concern, with the latter stemming from the deleveraging of store payroll and benefits, higher corporate overhead from strategic investments and increased store and marketing expenses. We project an SG&A expense increase of 5.3% for the third quarter, with the rate likely to expand 130 bps to 27.9%.

That said, Ulta Beauty’s focus on strengthening its product assortment, accelerating social relevance, enhancing digital experiences and leveraging its world-class loyalty program has been aiding. Growth in the skincare category, thanks to consumers’ rising interest in self-care and the company’s focus on newness and innovation, is another upside.

Earnings Whispers for ULTA

Our proven model doesn’t conclusively predict an earnings beat for Ulta Beauty this time. 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, which is not the case here.

Ulta Beauty carries a Zacks Rank #3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

More By This Author:

3 MFS Mutual Funds For Excellent Returns
Why Lyft Might Be Well Poised For A Surge
End Of Year Rally: 3 Stocks To Watch (InterDigital, Futu Holdings, Exelixis)