Ulta Beauty Cuts Annual Operating Margin Forecast on Cost, Inventory Woes

Cosmetics retailer Ulta Beauty Inc cut its annual operating margin forecast on Thursday, signaling pressure from higher inventory shrink and supply chain costs.

Shares of the company fell 8.3 percent after the bell.

Ulta Beauty had hiked prices in the later half of 2022 to protect its margin, but the benefits were outweighed by rising store expenses and wage pressures.

Besides, elevated product prices and mounting worries of recession have forced budget-conscious consumers to limit their spending on discretionary items, including cosmetics and fragrances.

“Inflation concerns remain high and consumers are spending more selectively,” said David Kimbell, chief executive of the company in a post earnings call.

Financial chief Scott Settersten on the same call said the company entered 2023 expecting growth in beauty category to moderate and promotional environment to increase.

The company now forecasts annual operating margin between 14.5 percent and 14.8 percent compared with its prior projection of 14.7 percent to 15.0 percent, but lifted its annual sales forecast.

Like Target Corp and Foot Locker Inc, Ulta also flagged increasing concerns from theft and organised crime that resulted in retailers seeing an inventory shrink or loss.

Ulta Beauty, along with its own line of products ranging from lipsticks to moisturisers, sells high-end beauty brands including Bobbi Brown and Hourglass, and celebrity-led cosmetic lines from Ariana Grande and Kylie Jenner, among others.

The company’s expenses are trending higher than originally expected, Morningstar Research analyst David Swartz said, adding the guidance is too low as it is close to the previous range.

Its revenue rose 12.3 percent to $2.63 billion in the first quarter ended April 29, beating analysts’ average estimate of $2.62 billion, according to Refinitiv data.

By Anne Florentyna Gnanaraja Sekar; Editor: Shilpi Majumdar

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