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Bear of the Day: Ulta Beauty (ULTA)

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Ulta Beauty (ULTA - Free Report) is the $13 billion darling of high-end suburban strip malls with cosmetics, bodycare, styling and other salon and spa services unparalleled by any other retailer.
I most recently profiled the earnings decline in ULTA in the quarantine-induced recession battleground on April 22. Here's what I wrote then, as I compared this retailer's fate to that of the e-commerce disrupter Shopify (SHOP - Free Report) ...
As I noted in the SHOP story, Wedbush analysts pointed out a reason for caution on that stock: "There is also the factor that Shopify's merchants largely represent consumer discretionary spend on items from categories like fashion, cosmetics, health and beauty."
But SHOP's gain in that department may be ULTA's pain as the $68 billion e-commerce disruptor begins to eat some of the brick-n-mortar's lunch money which is expected to total $7 billion on the top line this year, representing a 5.44% decline. 
Of course, it's the downward earnings estimate revisions that have made ULTA a Zacks #5 Rank this month. 
In the past 60 days, the current fiscal year 2021 (ends in January) saw consensus EPS projections drop a whopping 31.6% from $13.09 to $8.95, representing a 25% annual decline. Next year only dropped half as much from $14.34 to $12.05.
(end of April excerpt on ULTA)
Since then, topline growth projections have slipped further to $6.5 billion for a negative 12% advance. And full year EPS has fallen another 16.4% to $7.48, representing negative growth of -37%.
And last week, ULTA reported their Q1 earnings and posted dismal results as both top and bottom lines deteriorated year over year and fell massively short of the Zacks Consensus Estimate.
Ulta Beauty posted an adjusted loss of $1.12 per share against earnings of $3.08 reported in the year-ago period. The Zacks Consensus Estimate for earnings stood at 44 cents.
The quarter started on a solid note with higher comparable store sales (comps), market share gains and growth in the Ultamate Rewards loyalty program until mid-March. However, the coronavirus outbreak and its rising spread considerably harmed operations.
In fact, Ulta Beauty operated as a digital-only business for most parts of the quarter. Though the company saw a higher-than-expected jump in e-commerce sales, it could not compensate for the losses from store closures.
As I explained in a video back in April, the stock market appears to be led by a handful of stocks making up the strength of the new "remote economy"...
I could have included SHOP in the FAAMNG group -- Facebook (FB - Free Report) , Apple, Amazon (AMZN - Free Report) , Microsoft, Netflix (NFLX - Free Report) and Alphabet -- that's holding up the market. Though it's not in the same class as those behemoths with giant revenues and cash flows, it will emerge from this crisis even stronger as the go-to etailing platform for many small companies and distributors.
And both SHOP and ULTA will tell us a lot overall, through their growth challenges, about this crisis and the road ahead.
On the Wednesday evening I released that video, I saw that Cramer profiled Victoria's Secret as a microcosm of the terminal pain for shopping malls. Here were his key points...
“It’s not just the department store that’s dying. It’s the whole mall."
“We knew we didn’t need the department stores, but now the pandemic’s making us realize that maybe we may not need anything in the mall at all.”
“Only two kinds of retailers are working here: the ones that have enormous scale and sell essentials or the ones with fabulous digital businesses.”
ULTA may be one mall story that is most likely to adapt and come out stronger than others. And trading at only 1.6 times sales, it remains an incredible bargain vs SHOP at over 30X.
There will be a time soon to pick up shares of ULTA again soon under $200. The Zacks Rank will let you know.
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This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.

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