Ulta Beauty Downgraded by BMO Capital Markets

Ulta Beauty Inc. (NASDAQ: ULTA) was downgraded to market perform from outperform at BMO Capital Markets. The company has many advantages such as digital competence and a loyalty program that is able to be monetized but has faced many challenges. Older stores have been struggling to gain market share due to a sluggish beauty market. Department stores are getting more promotional and launching their own beauty focused loyalty programs while online retailers such as Amazon is gaining in the mass beauty area. Other brands such as Sephora is moving into locations away from malls. BMO analysts believes that Ulta will begin to see a decrease in sales over the next 12 to 24 months. Shares of Ulta have dropped 9.3% in Friday trading and are down 17% for the next year to date.

“The Ulta Beauty team delivered another quarter of excellent performance with strong top line growth coupled with robust margin expansion,” said Mary Dillon, Chief Executive Officer. “We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers through our industry leading loyalty program. Product category strength was broad based, with prestige cosmetics still driving the majority of our growth, and with skincare, fragrance, and haircare all gaining momentum. We are also benefitting from continued success of our marketing programs, rapid growth in e-commerce, and solid operational execution across the enterprise.”

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