MW Ulta Beauty's troubles have 'likely reached a bottom,' Goldman Sachs says, but other analysts cite these threats

By Bill Peters

Growth in the beauty industry has 'largely normalized' after a postpandemic boom, analysts say

Over the past few years, beauty-products chain Ulta Beauty Inc. has faced easing demand and stiffer competition. But analysts at Goldman Sachs on Tuesday said the company had "likely reached a bottom," at least as it relates to those concerns.

Analysts there led by Kate McShane upgraded shares of the retailer to buy from neutral, after staying on the sidelines on the stock since late 2022. Shares of Ulta Beauty $(ULTA)$ were up 1.7% on Tuesday.

The Goldman analysts on Tuesday said growth in the beauty industry had "largely normalized" after a postpandemic boom driven by a return to offices and social gatherings. But they said that growth overall would benefit Ulta Beauty, and they see the chain "likely outperforming" the industry next year.

They also called out a 9% year-over-year uptick in downloads for the chain's app in February and gains in monthly active users. And they pointed to greater online search interest for its 21 Days of Beauty sale.

The analysts made those remarks as some of Ulta's rivals try to sell more prestige beauty products in more places. Kohl's Corp., for instance, has been opening more Sephora shops inside its stores. While that trend has put pressure on Ulta's sales, the analysts said the impact would likely slow over time. And they noted that Kohl's $(KSS)$ had issues of its own.

"In our view, the impact from Sephora will likely slow given fewer Sephoras at Kohl's ... shop-in-shop openings, and it could further change if [Kohl's] were to close additional doors," the analysts said.

Kohl's, during its earnings call last month, said it announced the closure of 27 underperforming stores during the fourth quarter. The department-store chain is trying to turn itself around after forecasting falling sales for the year ahead.

Shares of Ulta Beauty have fallen around 28% over the past 12 months. When the company reported quarterly results last month, management laid out plans to clean up store layout and presentation, while pushing more wellness products and online sales. While they were upbeat about the retail-store debut of Beyoncé's hair-care brand, Cecred, they also said it "will take time" for the chain's efforts overall to pay off.

The Goldman analysts, however, said Ulta's outlook could end up being conservative. And while President Donald Trump's tariff prescriptions upend markets and financial forecasts, they noted the company's lower exposure to any protracted trade war.

"While we don't know the exact exposure our brand partners have upstream, only about 1% of our shipments over the last 12 months were direct imports, and so our exposure is relatively limited," Ulta Chief Financial Officer Paula Oyibo said on the company's earnings call in March.

Elsewhere, other analysts have been more cautious, as online spending on beauty products increases and higher costs of living make customers think twice about spending too much.

Jefferies analyst Ashley Helgans and others, in a note last week, said they expect e-commerce outlets - like Amazon.com Inc. and TikTok Shop - to be the main market-share gainers in beauty over the next three years, as stores become less fun to shop in and online influencers play a bigger role in helping people discover new trends.

"The beauty industry is in flux, and we view this time as a key industry inflection point," the Jefferies analysts said. "Similar to when beauty shopping evolved from department stores to multi-branded specialty, we are again seeing how consumers shop fundamentally change."

Citing Numerator data, they said Amazon $(AMZN)$ had taken the most business away from Ulta and other companies, like Sally Beauty Holdings Inc. $(SBH)$ and Bath & Body Works Inc. $(BBWI)$. But they said TikTok Shop was taking share from Amazon, and added that TikTok was likely to become an important beauty marketplace.

"Specialty growth has stalled as the structural shift to online channels has [continued]," the analysts said. "Specialty's slowing reads negative for Ulta, as Sephora is gaining share, and Ulta is the donor."

-Bill Peters

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April 01, 2025 16:06 ET (20:06 GMT)

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