By Mackenzie Tatananni
Ulta Beauty stock fell after an analyst downgraded it, citing challenges with the company's shift to online commerce.
Shares tumbled 2.6% to $334.33 Thursday, marking a 31.9% drop from a year ago and putting Ulta on pace for its worst year since 2008, when the stock fell 51.72%, according to Dow Jones Market Data.
William Blair analyst Dylan Carden downgraded the stock to Market Perform from Outperform on Wednesday, writing that the decision was based on a "hard reset of expectations" after the company's analyst day on Oct. 16.
Carden argued the consensus estimates for the beauty retailer's 2025 comparable sales and operating margin "embed expectation of an early-2025 inflection in the beauty category," which isn't expected to pan out.
The analyst identified a longer-term risk to the beauty category's move to online sales, which is "potentially in the most damning phase" when it comes to the effect on retail stores and will drive "heightened, more dynamic competition."
Ulta's stores and website collectively offer over 500 brands, ranging from mass market to prestige cosmetics, skin care, fragrance, and hair care. Each store also operates a salon.
The shift from in-person to online shopping has proven treacherous for the beauty industry, especially for higher-end retailers. Ulta CEO David Kimbell noted that prestige brands were "expanding their online availability as digital penetration grows in the category."
"As a result, our market share has been more challenged for the last few quarters," Kimbell said during the company's first-quarter earnings call in May.
Carden himself indicated that the extent of online migration's impact remains to be seen. As part of the shift, Ulta could either lose out on market share or cannibalize its own retail channel to maintain demand.
"Beauty has long been insulated from the internet in that it is still very much a try-on and services-type product," Carden wrote. "We believe the coming years will be important to better understand the online risk."
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 21, 2024 12:33 ET (17:33 GMT)
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