ULTA - Ulta Beauty: Still Struggling To Capture Demand Move Inventory

2024-07-21 12:30:11 ET

Summary

• Ulta Beauty's revenue growth slowed in Q1 FY24, particularly in the cosmetics segment, facing competitive pressure in the prestige beauty market.
• Inventory levels at Ulta Beauty remain high, impacting the company's ability to generate free cash and move inventory off its books.
• Markets now appear to be pricing in 4.4% CAGR growth rates for Ulta's free cash, closer to my estimates and down from the 5.5% they were pricing in last quarter.
• Ulta's valuation suggests marginal downside, with the stock expected to be range-bound for a few months, despite challenges in demand and inventory management.

Investment Thesis

In my previous coverage of Ulta Beauty (ULTA), I mentioned my surprise at the sudden downward revision in the cosmetics & beauty chain’s FY24 outlook that was expressed by management in a previous Retail RoundUp conference . The reason this downward revision caught me off guard at the time was because it occurred in a span of 2-3 weeks after the company set full year expectations in their disappointing FY23 earnings report ....

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