Barclays Upgrades Ulta Beauty to Overweight, Target Price 14% Higher

Barclays has upgraded its rating for Ulta Beauty (ULTA.US) from "neutral" to "overweight," reflecting a positive outlook on the company's performance and growth prospects. The target price for Ulta Beauty has been increased by 14% to $589, indicating a potential 13% upside from the closing price on Thursday. This upgrade comes ahead of Ulta Beauty's upcoming second-quarter earnings report, which is expected to show continued growth in same-store sales and minimal impact from tariffs.

Under the leadership of CEO Kassie Storlie, Ulta Beauty has implemented a series of "fast and decisive" changes. These include optimizing retail distribution channels, such as ending its partnership with Target, improving promotional activities, and expanding its price range and product categories. These efforts have provided significant distribution channels for both mass-market and high-end beauty brands.

Analyst Andrea Yih of Barclays believes that the beauty category, particularly Ulta's core customer base of "beauty enthusiasts," will continue to increase spending on beauty, health, and wellness products. Yih notes that the overall beauty market, which peaked in 2022, is stabilizing and is expected to maintain a mid-single-digit growth rate annually.

Regarding tariffs, Ulta Beauty faces minimal risk. Only about 1% of its products are directly imported, meaning the impact of tariffs on direct costs is negligible. This positions Ulta Beauty favorably in the current economic environment, where tariffs could affect other companies more significantly.

Ulta Beauty is scheduled to release its second-quarter earnings on August 28 after the market close. Analysts expect earnings per share of $5.08 and revenue of $2.67 billion. The company's strategic initiatives and strong market position are expected to drive continued growth and profitability.