Ulta dips on guidance; Does the conservative outlook open a buy the dip opportunity?

Ulta Beauty (ULTA) reported its fourth-quarter earnings results, exceeding expectations but falling short of more bullish forecasts. Shares fell in reaction to the news as the guidance was viewed as disappointing. However, a few analysts see the outlook as conservative. Given the early bounce in shares it would appear some investors share this view. 

ULTA reported earnings results for its fourth quarter on Thursday, surpassing expectations but issuing a mixed outlook for the upcoming fiscal year 2024. The company's earnings per share (EPS) came in at $8.08, beating the consensus estimate of $7.53. Revenue for the period increased by 10.2% year-over-year to $3.55 billion, also surpassing the $3.53 billion estimate.

Comparable sales growth for the quarter stood at 2.5%, a notable achievement considering the strong performance in the same period the previous year, which saw a growth of 15.6%. Ulta Beauty's CEO, David Kimbell, commented on the earnings call that the company expects the category growth to moderate to the mid-single-digit range in 2024, barring any major economic events.

Ulta's positive results were attributed to a stronger comp and profit flow-through, which contributed to the upside surprise. However, the company's guidance for fiscal year 2024 (FY24) was conservative, aligning with its typical practices. Ulta Beauty provided guidance for fiscal 2024, with EPS expected to be in the range of $26.20 to $27.00, slightly better than the Street's forecast of $27.03. The company also projected revenue to be in the range of $11.70 billion to $11.80 billion, just above the $11.69 billion consensus.

In addition to its earnings report, Ulta Beauty announced a few noteworthy developments. The company plans to expand into the Mexican market through a joint venture with Axo, a highly experienced operator of global brands, in 2025. This move has been positively received by analysts at Jefferies and TD Cowen, who view it as a good opportunity for Ulta Beauty to extend its reach and leverage its differentiated value proposition.

Furthermore, Ulta Beauty's board of directors approved a new $2 billion share repurchase authorization on March 12, replacing the prior authorization implemented in March 2022.  

Despite Ulta's positive financial results, the stock experienced a decline of 7.77% in trading following the earnings report. Investors were disappointed by the company's guidance, which fell short of expectations. Ulta's shares had previously risen by 15% year-to-date.

Some analysts maintain an optimistic outlook for the company. Jefferies analysts view Ulta's expansion into Mexico as a positive move, as they believe the U.S. distribution expansion story has mostly played out. In addition, TD Cowen analysts highlight the company's strong loyalty program, social media presence, diversified portfolio, and innovation initiatives as reasons for considering Ulta a unique buying opportunity.

BMO Capital Markets, for example, continues to commend Ulta Beauty's consistent execution and believes that the share price generally reflects this, with a $540 price target (~18x FY25 EPS). Similarly, TD Cowen analysts see a unique buying opportunity for the company, reiterating their Outperform rating and $580 price target.

Shares of ULTA tumbled to $502 but have bounced back to the $525 area in early trade. Holding above the 50-sma ($516) is critical for bulls. If they can hold this level, then it sets up for a swing long in the stock.