Ulta Beauty (ULTA) Stock Slides On Several Downgrades

Shares of Ulta Beauty (NASDAQ:ULTA) fell 3.5% in midday trading on Monday after the company’s stock received a lower price target and was downgraded by several analysts.

Stifel Nicolaus lowered its price target on Ulta stock to $270, down from $325. Analysts cited concerns that the U.S. beauty industry is showing slower growth, while Amazon.com (NASDAQ:AMZN) is expanding into prestige brands and heightening competition.

“Numerous data points suggest U.S. beauty category growth slowed in 2Q17, including from retailers Macy’s (NYSE:M) and Sephora, beauty companies L’Oreal and e.l.f. Beauty (NYSE:ELF) and scanner data measuring sales trends in food, drug, and mass channels” said analysts led by Mark Astrachan.

Slowing makeup and mass-priced product sales could cause a huge problem for Ulta, as each category accounts for about 50% and 40% of the company’s total sales.

However, Stifel remains positive on the stock. “We remain favorable on Ulta’s longer-term growth trajectory anticipating continued share gains of beauty retail sales, benefiting from the accelerating shift from traditional sales channels to specialty retailers, online, and mobile, and attributable to Ulta’s increasing focus on its loyalty program, targeted promotions, and new credit card program,” said the firm.

“That said, we believe near-term trading could result in more downside than upside given broader multiple contraction in retail due to slowing category growth and fears of increased competition from Amazon.”

OTR Global also downgraded Ulta from a positive rating to a mixed rating after interviewing suppliers about the impact of Amazon.

ULTA is set to report its second quarter fiscal 2017 results this Thursday after market close. The Zacks Consensus Estimate predicts that the company will report earnings of $1.78 per share and revenue of $1.29 billion.

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