Investing.com -- Ulta Beauty shares declined more than 3% Wednesday following the announcement of its new financial targets at its 2024 Investor Day.
The stock reacted negatively to management's long-term projections, with analysts expressing concern over the lowered margin guidance and challenges to growth.
Ulta reaffirmed its FY24 guidance, with net sales expected between $11 billion and $11.2 billion and EPS seen from $22.60 to $23.50.
Furthermore, Ulta's updated financial targets for 2026 and beyond include 4-6% annual sales growth, mid-single-digit operating profit growth, and operating margins around 12%—lower than the previous 13-14% range.
Additionally, the company aims for low double-digit earnings per share (EPS) growth over the long term.
Ulta also emphasized that the next two years will be "transitional" as the company navigates shifting consumer dynamics.
"While we expect 2024 and 2025 will be transitional years as we manage through near-term category dynamics, over the long-term, we see additional opportunity to expand our leadership position, delivering both profitable growth and compelling shareholder value," said Paula Oyibo, chief financial officer of Ulta.
Reacting to the update, BMO (TSX:BMO) Capital noted the potential concerns around these revised margins. "We believe the recent investor debate centered around lower margin targets being better for shares, but further reductions foster doubt about where it bottoms," the analysts wrote.
They added that despite reaffirming FY24 guidance, "the burden of proof remains on execution," with market participants closely watching how Ulta delivers on these targets amid increased competition.
The company also revealed plans to accelerate new store openings, targeting 200 stores annually for the next three years, and increased its share repurchase program by $3 billion.
Despite these strategic moves, Piper Sandler analysts highlighted the tempered expectations.
"Sales are expected to grow at 4-6%, compared to our and the Street's 4.7% and 5.4% targets for 2026 and 2027," the analysts noted.
They also pointed out that Ulta's low-double-digit EPS growth forecast fell short of prior expectations, especially for 2027, where the Street had estimated 13.6% growth.
"From an EPS perspective, management expects to grow EPS in the LDD range. Again, this compares to our 9.0%/Street's 9.8% in 2026 and our 8.0%/Street's 13.6% in 2027," stated the firm.