Things got ugly for big beauty supply chain Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) after the company gave a not-so-pretty earnings forecast for the current quarter.
Shares shed more than 15% to its lowest level in more than a year after reporting robust results but uninspiring guidance. The company expects to incur greater expenses as it rolls out new stores and makes other investments.
The Bolingbrook, IL based company expects a profit of 60-63 cents per share on revenue of $568-$577 million for the first fiscal quarter of 2013. That’s shy of analysts’ expectations of 72 cents and revenue of $579.7 million.
It’s possible that like a rash of retailers concerned the payroll tax, rising price of gasoline and looming uncertainty on Capitol Hill will curb consumer spending, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) is being coy with expectations.
Ulta’s concept of selling a cache of beauty items such as make-up, skin and hair products and accessories, coupled with hair and spa services, gives it an edge over higher-end rivals Estee Lauder Companies Inc (NYSE:EL) and Elizabeth Arden, Inc. (NASDAQ:RDEN).
With 550 stores, and plans to open another 125 this year, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) benefits from increased foot traffic, impulse buying and longer customer time spent in stores perusing and purchasing.
The Sector Looks Appealing
In the same sector, Elizabeth Arden, Inc. (NASDAQ:RDEN) looks attractive. The company recently reported that earnings grew 11% to $1.58 a share in the latest quarter, but short of Wall Street’s projected $1.63. However, the company remains upbeat about future growth as it morphs into a higher-end brand image. It has also started using pop-star persuasion to help boost sales. By tapping into the younger market, EL is broadening its appeal and reach.
After adding hip fragrances from teen-sensation Justin Beiber (Girlfriend), rapper and American Idol judge Nicki Minaj (Pink Friday) and the queen of country Taylor Swift (Wonderstruck), sales in North American popped 8.4%. Through re-branding and new partnerships, Elizabeth Arden, Inc. (NASDAQ:RDEN) could come out smelling like a rose or some other sweet aroma.
Estee Lauder (NYSE:EL) has caught the eye of UBS, which upped shares to a “Buy” with a $75 price target. The upgrade came on better-than-expected earnings in the latest quarter, handily beating forecasts by 11 cents. Revenue rose 7.1% year-over-year. Guidance was positive for the rest of the fiscal year.
The NYC headquartered company’s bevy of brand name products, including Estee Lauder, Aramis, Clinique, Origins, M.A.C., Bobbi Brown, La Mer and Aveda, are sold in over 150 countries. Company-wide efforts to reduce or eliminate non-value added costs, in conjunction with long-term strategic plans and initiatives, saved the company $26 million in realized savings in the recent quarter. Solid results and an affirmative outlook place Estee Lauder in the ‘carefully consider’ column.
Beauty Is Attitude
While competitors look good, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s fresh slump (down some 30% from its 52 week high) could provide more upside. Though some near-term concerns exist, several analysts are still optimistic about Ulta.
A Sterne Agee analyst believes Ulta’s long-term growth plans remain intact and maintains a “Buy” on the stock. Credit Suisse is also bullish, upping its rating to an “Outperform.”
Sluggish holiday sales weighed on Ulta and the entire retail industry last year. Worries over the fiscal cliff and lingering effects from Superstorm Sandy presented retailers with the toughest holiday season since the 2008 financial meltdown. Looking ahead, Ulta sees consumer demand picking up.
Investors ought to look beyond Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s fresh blemishes.
Sometimes beauty in distress is the most affecting beauty.
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