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Evercore ISI analysts have reduced their price target for Ulta Beauty (NASDAQ: ULTA) shares from $500 to $430, citing near-term challenges for the cosmetics retailer. Despite maintaining an “Outperform” rating, the investment bank expressed concerns over slowing category growth, increasing competition, and a lack of product innovation, which are expected to impact Ulta’s performance in the coming quarters.
The analysts noted that Ulta has been removed from Evercore’s Top 5 Outperformers list due to these anticipated challenges. Key issues driving the price target reduction include a slowdown in same-store sales (SSS) growth and a decline in market share within crucial beauty categories. Evercore has revised its 2Q24 SSS growth estimates down from +1.5% to +0.5%, with further reductions expected in the second half of the year.
The report highlighted that Ulta is losing market share to competitors like Sephora and Amazon, which have been expanding their presence in the beauty sector. Sephora has gained ground in makeup and fragrance, while Amazon has made significant strides in skincare and haircare.
Additionally, Evercore’s analysts foresee a reduction in Ulta’s EBIT margin, lowering their FY24 forecast from 13.8% to 13.3%, and FY25 from 13.9% to 13.0%. They predict that Ulta may need to adjust its long-term EBIT margin target to the lower end of its current 13-14% range, as the company might have to offer more favorable terms to beauty brands and increase its promotional efforts to remain competitive.