Ulta Beauty, Inc. ULTA has seen its shares decline 17.3% over the past three months, underperforming the broader Zacks Retail – Wholesale sector and the S&P 500, which fell 11.3% and 14.7%, respectively. Meanwhile, the stock has fared slightly better than the industry’s 18.4% drop. This pullback reflects a combination of challenging macroeconomic conditions and company-specific headwinds. 

That said, Ulta Beauty has still managed to outperform some of its peers, such as Sally Beauty Holdings, Inc. SBH, The Estee Lauder Companies Inc. EL and Coty Inc. COTY. Shares of Sally Beauty, The Estee Lauder Companies and Coty have declined 21.1%, 28.1% and 28%, respectively, in the past three months.

Investors remain divided on whether Ulta Beauty is headed for further downside or nearing a potential rebound.

ULTA Price Performance vs. Industry, S&P 500 & Sector

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After a 4.6% decline during yesterday’s session, the stock is now trading at $342.93, well below its 52-week high of $460, attained on Jan. 7, 2025. ULTA stock is trading below critical technical thresholds, including its 50 and 200-day moving averages.

What’s Dragging on Ulta Beauty’s Growth?

Ulta Beauty continues to grapple with evolving consumer spending patterns as economic pressures drive a growing demand for value. This shift may prompt increased promotional activity aimed at attracting more price-sensitive shoppers, an approach that can boost sales in the short term but risks eroding margins.

Apart from this, the company’s prestige beauty segment faces increasing competition as more distribution points and new entrants intensify pricing and customer retention challenges. By the end of fiscal 2024, more than 90% of Ulta Beauty locations had been affected by one or more nearby competitive openings, with two-thirds impacted by multiple new competitors. This heightened competitive landscape continues to challenge ULTA’s ability to defend market share.

Ulta Beauty’s fourth-quarter fiscal 2024 results highlighted weakness in key categories, with makeup experiencing a mid-single-digit decline in comparable sales. The decline was largely due to softness in mass makeup, as the category lapped strong newness and social engagement last year. A continued decline in these categories could hinder the company’s overall growth potential, as these segments are integral to driving traffic and sales. 

Meanwhile, rising costs remain a concern for Ulta Beauty. Selling, general and administrative (SG&A) expenses have been steadily increasing, reaching 27% of net sales in the fiscal fourth quarter, up from 26.6% in the same period a year earlier. For fiscal 2025, management anticipates another 10% increase in SG&A, fueled by strategic investments, higher advertising outlays and rising store payroll and benefit costs.

Ulta Beauty Estimates: Trouble Still Brewing?

Reflecting cautious sentiment around Ulta Beauty, the Zacks Consensus Estimate for earnings per share (EPS) has seen downward revisions. Over the past seven days, analysts have trimmed estimates for both the current quarter and fiscal year by three cents each, to $5.75 and $23.05 per share, respectively. These estimates suggest year-over-year declines of 11.1% and 9%, respectively. The revisions highlight lingering concerns about ULTA’s near-term profitability outlook.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Here’s How Ulta Beauty is Navigating Challenges

Despite lingering challenges, Ulta Beauty is actively investing in strategic growth drivers, such as digital expansion, store growth and loyalty program enhancements, to regain momentum and strengthen its competitive position. These efforts are particularly important as the company faces increased pressure from peers like Sally Beauty, The Estee Lauder Companies and Coty.

A core strength for Ulta Beauty is its ability to balance digital and physical retail. Consumers are increasingly navigating seamlessly between channels, and the company is investing in enhancing the guest experience across all touchpoints. In the fourth quarter of fiscal 2024, e-commerce sales grew at a mid-single-digit rate, driven in part by growing engagement through the mobile app. In-store efforts, such as same-day delivery and store remodels, further support a cohesive shopping journey. 

Meanwhile, skincare continues to shine as a growth category. In the fiscal fourth quarter, ULTA’s skincare segment saw mid-single-digit comp growth, with body care leading the charge. For 2025, the company continues to strengthen its skincare portfolio with launches, including the innovative K-beauty skincare brand ANUA, which is exclusive to Ulta Beauty. Moves like this show the company’s commitment to offering fresh, in-demand products that resonate with today’s beauty shoppers. As more consumers prioritize skincare and self-care routines, ULTA sees this space as a long-term growth engine.

ULTA’s Valuation Picture

ULTA is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 14.59, which is below the median level of 15.24 scaled in the past year. This compares with the forward 12-month P/E ratio of 14.26 for the industry. 

ULTA P/E Ratio (Forward 12 Months)

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How to Play ULTA Stock?

Ulta Beauty’s recent stock decline reflects multiple challenges, including softening demand in core categories like mass makeup, rising competition in the prestige segment, and increasing operating costs. Downward earnings estimate revisions further reinforce near-term caution. Nonetheless, the company is actively investing in strategic growth drivers, such as digital expansion, store growth, and loyalty program enhancements. For current investors, holding onto Ulta Beauty could make sense, while for new investors, it may be wise to wait for clearer growth catalysts before initiating a position in this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report

Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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