Big decline after hours! Middle Eastern conflict spreads to beauty retail: inflation fears may squeeze consumer budgets, Ulta Beauty's earnings guidance this year falls short of expectations

Ulta Beauty(ULTA.US) continues to maintain strong same-store sales growth and better-than-expected net sales, but disappointing fourth-quarter profits and weak guidance for fiscal year 2026 have disappointed investors. As of press time, the stock fell 8.08% after hours. This year, the stock has risen approximately 3.3%, outperforming the S&P 500 index.

In the fourth quarter, driven by the success of its Beauty Unleashed strategy, growth in same-store sales, and the acquisition of Space NK, revenue performance continued to excel, with net sales increasing 11.8% to $3.9 billion, surpassing general expectations. Same-store sales grew 5.8%, higher than the 1.5% increase in Q4 2024, and also above the 4.25% growth forecast. However, earnings per share were $8.01, below last year’s $8.46, and 2 cents lower than Wall Street expectations.

The company issued a guidance for the current year that falls below Wall Street estimates. According to the company’s statement, same-store sales—measuring revenue from online and physical stores open for at least a year—are expected to grow between 2.5% and 3.5% this year, with a median below the analyst average expectation of 3.5%. The median earnings per share are also only slightly below the average forecast—expected to be between $28.05 and $28.55, with a median of $28.30, also below the market consensus of $28.58.

The company stated that due to reductions in fixed expenses and revenue, its gross profit as a percentage of net sales has slightly declined, but decreased inventory loss and improved supply chain efficiency offset this impact. Gross profit margin declined 10 basis points to 38.1%, while operating profit margin fell from 14.8% a year ago to 12.2%.

Although under the leadership of CEO Kecia Steelman, the cosmetics chain has achieved strong revenue growth and expanded into regions like the Middle East, the outlook indicates that Ulta is taking a cautious stance amid escalating geopolitical turmoil and ongoing cost pressures.

In the U.S., demand for cosmetics remains robust. Ulta’s extensive product line, from mass-market to high-end brands, attracts many consumers. To appeal to younger and wealthier consumers, Ulta relies on celebrity-owned premium brands, such as Beyoncé’s Cecred hair care line and Rihanna’s Fenty Skin Body, and has also launched holiday campaigns featuring figures like Khloe Kardashian and Paris Hilton.

However, the market is full of uncertainties. Rising energy prices due to escalating tensions in the Middle East have disrupted global shipping and raised concerns about consumer economic pressures, while U.S. consumers are currently facing inflation. Especially middle- and lower-income consumers, who have been reducing discretionary spending and allocating more of their tight budgets to essentials like groceries.

Last month, Estée Lauder(EL.US) forecasted that due to weak demand in the Americas and reforms under the new CEO, with increased investment and marketing in high-end products, its annual profit would fall below expectations.

Ulta also faces fierce competition from Target(TGT.US) and Walmart(WMT.US)—these large retailers are expanding their beauty product lines and riding the wave of surging demand for Korean beauty products.

Ethan Feller, a stock strategist at Zacks Investment Research, said: “Ulta Beauty’s position as a leading professional beauty retailer is undisputed, but Sephora, Amazon, and increasingly direct-to-consumer brands are competing for the same consumer wallet. Even at the top, when valuations are too high relative to growth prospects, multiple stock price declines are unavoidable.”