Ulta Beauty stock has been up 14% since August 14, when a regulatory filing revealed that Warren Buffett’s Berkshire Hathaway took a stake in the second quarter.
Berkshire Hathaway owned about 690,000 Ulta Beauty shares worth $266.3 million as of June 30. Ulta now ranks 30th in Berkshire’s total holdings, accounting for 0.1%, Whalewisdom data shows.
The filing didn’t specify if Buffett was the one making the purchases, although his portfolio managers, Todd Combs and Ted Weschler, usually handle Berkshire’s smaller stock investments.
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Mr. Buffett is a value investor who looks for long-term moats in companies. His famous investments include Coca-Cola, Apple, and Bank of America.
“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years,” Buffett once said.
What makes Ulta Beauty’s moat
Ulta Beauty (ULTA) is an American chain of cosmetic stores headquartered in Illinois. The company operated 1,395 stores at the end of the fiscal first quarter ended May 4.
Ulta takes a broader approach to its inventory than its high-end competitor Sephora, offering more budget-friendly brands and a wider range of categories, including nail polish and men's products. Sephora is a French beauty retailer owned by the luxury giant LVMH.
“I found brands like Essence and Elf [in Ulta], which offer makeup at drugstore prices. This signaled to me that Ulta's range from luxury to low-end truly caters to every age and income,” freelancer Jennifer Ortakales Dawkins told Business Insider, adding that Sephora has “a limited number of brands and prices tend to be higher.”
Morningstar analyst David Swartz highlighted Ulta's brand strength as the “moat” for the company.
"We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive despite economic conditions and other external challenges,” Swartz said in April. He told investors that Ulta’s key advantage lies in its large, loyal customer base and scale, making it an attractive partner for beauty brands.
Ulta Beauty posted upbeat financial results for the first quarter of 2024. The company earned $6.47 per share in three months, ending May 4, topping the $6.24 expected by analysts. Revenue of $2.73 billion was up 3.5%, beating the anticipated $2.72 billion.
Comparable sales growth for Q1 was 1.6%, a decrease from 9.3% a year earlier.
The company has revised its full-year guidance for revenue and comparable sales growth downward.
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The company now anticipates FY24 net sales to range between $11.5 billion and $11.6 billion, a decrease from the previous forecast of $11.7 billion to $11.8 billion. Comparable sales are expected to grow by 2% to 3%, down from the earlier estimate of 4% to 5%.
Ulta is set to post its Q2 earnings on August 29.
Analysts reset Ulta Beauty stock price target before earnings
Despite Ulta's Q1 earnings beat and the recent purchase by Berkshire Hathaway, three analysts have lowered their price targets for the company ahead of its upcoming earnings report.
Evercore ISI lowered Ulta’s price target to $430 from $500 on August 26 and kept an outperform rating. The analyst also removed Ulta from the "Top 5 Outperformers list," citing “continued category weakness, tough competitive dynamics, and the recent bounce in the stock.”
Evercore ISI reduced Ulta's Q2 EPS estimate from $5.60 to $5.43 and lowered the FY24 estimate by 4%, from $26.00 to $24.50.
Citi analyst Kelly Crago reduced Ulta’s price target from $400 to $375 while maintaining a neutral rating. The analyst also anticipated a Q2 earnings miss, driven by “weaker comps and lower gross margin.”
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“Ulta is facing headwinds from weakening category trends and increased competition that are making it difficult to drive traffic this year,” the analyst tells investors in a research note.
Baird also trimmed Ulta’s price target to $485 from $525 with an outperform rating. The analyst lowered the estimates for the second half of 2024 to reflect reduced confidence in comparable sales growth.
Ulta Beauty stock traded at around $375 on August 26.
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