Shares of Ulta Beauty tanked more than 20% after the company reported earnings after the bell Thursday that missed analysts' expectations and slashed its outlook for the fiscal year.
The company said that the cosmetics industry has struggled as a whole this cycle, because there haven't been innovative beauty routines that drive consumers to purchase products as much as they normally do. CEO Mary Dillon said she believes industrywide challenges will continue in the near term, leading the company to lower its earnings and revenue growth guidance.
"Ulta Beauty continues to drive meaningful market share growth in makeup across mass and prestige but it's clear that cosmetics in the overall U.S. market is challenged," Dillon said on an earnings call. "The most recent cycle of innovation has just not driven those behaviors, resulting in a soft cycle for the cosmetics category in the U.S. as innovation and newness brought to the market has not driven the expected growth."
For example, Dillon said consumers haven't been picking up new rituals such as contouring or brow styling this cycle. Consumers have also been increasingly bypassing brick-and-mortar stores like Ulta and Sephora and turning to digitally native makeup brands like Glossier.
Ulta also said that skin care is a growing category. New ingredients such as SPF moisturizers and sunless tanners have been adopted by consumers as new rituals and drove strong sales in the fiscal second quarter. The beauty retailer also said it was adding new skin-care brands to its portfolio such as Sunday Riley and Kylie Jenner's skin-care line.
Here's how the company did, according to a survey of analysts from Refinitiv:
The company lowered its earnings forecast to a range of $11.86 to $12.06 per share from a prior range of $12.82 to $13.03 per share. It also cut its revenue growth expectations to between 9% and 12%. Previously, it said it expected low double-digit growth.
"The Ulta Beauty team delivered another quarter of solid top-line performance, gross margin expansion, and double-digit earnings growth," said Dillon. "Looking forward, we have updated our fiscal 2019 outlook to reflect the headwinds we are currently seeing in the US cosmetics market. We remain confident that our guest-centric, differentiated business model will drive continued market share gains and strong returns for our shareholders over the long term."
The company reported fiscal second quarter net income of $161.3 million, or $2.76 per share, compared with $148.3 million, or $2.46 per share, a year ago. This missed Wall Street's expectations of $2.80 in earnings per share.
Its revenue rose 12% to $1.67 billion, compared with $1.49 billion a year earlier. This was slightly lower than analyst expectations of $1.68 billion in net sales.
Shares of the company have risen 37% since the start of the year, bringing it to a market cap of $19.7 billion.