Analyst Sees Ulta Beauty's Q2 Outperformance Driven By Shifting Beauty Trends

JP Morgan analyst Christopher Horvers reiterated an Overweight rating on Ulta Beauty (ULTA), projecting a stronger-than-expected Q2 performance based on recent Nielsen and Circana data. Horvers highlighted a positive shift in beauty product sales within Food, Drug, and Mass channels, turning slightly positive at +0.1% for the four weeks ending June 14. This data underpins his revised Q2 growth forecast for Ulta Beauty of +4% to +7%, significantly exceeding the Consensus Metrix estimate of +2.1% and driven by improving market trends and easier year-over-year comparisons.

Analysis

JP Morgan has reiterated its Overweight rating on Ulta Beauty (ULTA), citing recent third-party data that points to a second-quarter performance significantly stronger than current market expectations. Analyst Christopher Horvers highlights a crucial inflection in beauty product sales within Food, Drug, and Mass (FDM) channels, which turned positive at +0.1% for the four weeks ending June 14, a notable improvement from the prior month's -1.2% trend. The core of this bullish thesis rests on the strong historical correlation between Ulta's same-store sales and this external data (65% with NielsenIQ cosmetics). This has prompted an upgraded Q2 growth forecast for Ulta to a range of +4% to +7%, which is substantially above the Consensus Metrix estimate of +2.1%. This optimistic outlook, corroborated by similar trends in Circana data, is further supported by easier year-over-year comparisons for Ulta in the latter part of the quarter, stemming from lapping previous promotional inefficiencies and operational disruptions.

Key Decisions for Investors

• Investors should consider the significant gap between the analyst's data-driven Q2 growth forecast of +4% to +7% and the market consensus of +2.1%, which may indicate a potential catalyst for an earnings surprise.
• Given the stock's negative price action despite the bullish report, the current weakness could present a tactical entry point for those who find the analyst's data-driven thesis credible.
• Monitor upcoming retail sales data and any pre-announcements from the company to validate whether the positive trends identified in Nielsen and Circana data are sustained through the end of the quarter.