LVMHF - Ulta Beauty: The Official End Of The 'Lipstick Effect' Tailwinds

2024-04-04 09:00:57 ET

Summary

• Ulta Beauty is facing elevated pressures in the consumer economy, leading to revised guidance and slower growth expectations.
• The company is experiencing intense competition from rivals like Sephora, which is rapidly expanding its physical store presence in the US.
• Ulta Beauty's lack of an expansion strategy and focus on store remodeling may hinder its growth potential and cash flows, making ULTA stock a sell.

Investment Thesis

The Lipstick Effect is a manifestation of consumer crosscurrents occurring when consumers reallocate their wallet spend from big-ticket luxury goods and other large items to smaller discretionary items such as lipstick during slowdowns. This was a tailwind for Ulta Beauty ( ULTA ) during the post-pandemic slowdown seen in 2022. But it doesn’t seem to be the case anymore....

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