Ulta Beauty had a year that felt like a bad breakup—a 32% drop in stock will do that to you. But just when it seemed like Ulta was headed for the dumpster, the Oracle of Omaha, Warren Buffett, decided to swipe right on the beauty retailer. 

(Source: Inc. Magazine)

On August 14th, the news hit that Berkshire Hathaway had splurged on a $266 million stake in Ulta, catapulting it to the 30th largest position in Buffett's portfolio. The stock immediately perked up, jumping 14% as if Buffett had just given it a makeover on national TV.

But Ulta Beauty’s 2 week "Hot Girl Summer" looks like it’s gonna be coming to an end prematurely. The company reported its second-quarter earnings after the market closed yesterday, and let’s just say, it was more of a smudged eyeliner situation than a cat-eye perfection. 

For the first time since May 2020, Ulta missed its earnings per share (EPS) target, reporting $5.30 instead of the expected $5.50. Revenue? Yeah, that missed too—$2.55 billion, falling short of the anticipated $2.61 billion. To add a cherry on top of this less-than-glamorous sundae, same-store sales declined by 1.2%, a sharp contrast to the 8% and 14.4% growth Ulta enjoyed in 2022 and 2023, respectively.

So, what went wrong? CEO Dave Kimbell took to the earnings call like someone trying to explain away a bad haircut. He blamed the disappointing results on a post-pandemic reality check, tighter consumer wallets, and a beauty market that’s starting to feel more crowded than a Sephora on Black Friday. Kimbell highlighted that Ulta’s market share is particularly being challenged in the prestige beauty segment, which has become more competitive.

“We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term,” Kimbell said, in what could only be described as the corporate equivalent of "it’s not you, it’s me."

(Source: Fortune)

But despite the lackluster results, analysts aren’t quite ready to break up with Ulta. CFRA analyst Ana Garcia acknowledged the challenges but noted that Ulta’s model isn’t “broken or structurally disadvantaged,” though she did warn that beauty demand might come under pressure in 2024 as consumers become even more cautious about where they’re spending their money.

So, what’s next for Ulta? Like Michael Scott in that one Office episode, the company is “aggressively taking actions” across five areas: strengthening its product assortment, cozying up to influencers for more social media reach, enhancing the digital experience, milking its loyalty program for all it's worth, and upping promotional activities. It’s a plan that sounds good on paper, but whether it can fend off the rising competition from both brick-and-mortar and online players like Amazon and TikTok remains to be seen.

As for Buffett, the man who once said, "Only buy something you'd be happy to hold if the market took a decade-long vacation," it looks like he’s settling in for the long game. Ulta might be in for some tough times, but if there’s one thing we’ve learned from the Oracle, it’s that patience—and maybe a little lot of makeup—can work wonders.

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Stock.News does not have positions in companies mentioned.