Demand for beauty products is slowing as debt burdens rise. That's weighing on Ulta's stock.
By Bill Peters
Shares of Ulta Beauty and e.l.f. Beauty are on pace for their biggest percentage drop since the start of pandemic lockdowns
Shares of Ulta Beauty Inc. were on pace for their biggest percentage drop in more than four years after the beauty-products retailer on Wednesday said industrywide demand had slowed more than expected over the past two months, threatening same-store sales growth.
The remarks appeared to pull other beauty-industry stocks lower, as well. Cosmetics makers e.l.f. Beauty Inc., Coty Inc. and Estee Lauder Cos. were all down in afternoon trading.
Ulta (ULTA) Chief Executive Dave Kimbell said during an investor conference call that demand, while easing, was still up, and that shopper enthusiasm was still high. But he said an array of issues - the same ones that other executives have called out, like price increases for basic necessities, higher levels of credit-card debt, the return of student-loan payments, conflicts abroad and the U.S. presidential election later this year - were making consumers anxious.
"It just creates this soup of activity for our consumers that they're trying to navigate through," he said.
"Consumers have been largely, in beauty, performing well and engaging highly in the category," he continued. "What we're seeing right now, as we're two months into our fiscal year, we have seen a slowdown in the total category."
He added later that the slowdown had occurred "a bit earlier" and been "a bit bigger than we thought," and that the growth rate had come down "probably faster than we anticipated."
Ulta Chief Financial Officer Paula Oyibo said that if those trends continue, she expected the chain's first-quarter same-store sales to be "on the lower end" of a prior forecast for growth in the low-single-digit range for the first half of the company's fiscal year.
Ulta Beauty's stock slid 13.9% on Wednesday. The stock was on pace for its largest percentage decrease since March 18, 2020, when it fell 16.87% amid concerns about pandemic restrictions and their impact on the economy.
E.l.f. Beauty (ELF) was down 10.9%. That stock, similarly, was on pace for its sharpest percentage drop since March 16, 2020, when it fell 21.26%.
Estee Lauder (EL) shares fell 4.1%. Coty (COTY) lost 6.2%.
Ulta executives have said that they expected demand for beauty products to moderate after several years of strong growth driven in part by the economy's reopening as people ventured back out into public life. But the chain last month forecast full-year profit that was just shy of forecasts and said the industry had gotten more competitive.
During the conference call on Wednesday, Kimball said that throughout most of last year, demand for mass-market makeup was strong, helped by newer offerings such as Nyx and Morphe. But he said demand for prestige brands took a hit as they are being sold in more places.
Ulta is trying to keep a steady flow of new offerings. On Wednesday, it introduced WYN Beauty, a new makeup line founded by tennis icon Serena Williams. Ulta said the line was geared toward a more active lifestyle and that Ulta would be selling it exclusively starting on Sunday.
Shares of Ulta Beauty are down 18.3% over the past 12 months.
-Bill Peters
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(END) Dow Jones Newswires
04-03-24 1536ET
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