11:35 AM EDT, 05/28/2024 (MT Newswires) -- Ulta Beauty ( ULTA ) is expected to lower its expectations for comparable sales growth in fiscal year 2024 given management's remarks on beauty category weakness, BofA Securities said in a note Tuesday.

The company initially projected a 4% to 5% increase, with H2 accelerating to at least a low-single-digit rate. Management cited easier comparisons and new products as reasons for this acceleration, the analysts said, adding they are less confident that Ulta can achieve this target, as the lower start of the year means a steeper ramp-up is needed in H2.

Analysts, including Lorraine Hutchinson, said they are revising their estimate for comparable sales growth in the next fiscal year to 2.3% from 3.6%. The new estimate for Q1 comparable sales growth is 1% and Q1 earnings per share are expected to be $6.24 compared to the consensus of $6.31. They are also lowering their full-year EPS estimate by 2% to $25.86.

"Given the Q1 weakness, management may choose to drive traffic and sales with increased marketing or by ramping up its promotional cadence rather than protecting margins. While there will be some opportunity to reduce selling general and administrative spending, we expect incremental deleverage on our lower comp estimate and some softness in gross margin," the analysts said.

BofA Securities cut its price target on Ulta Beauty ( ULTA ) to $425 from $575 while maintaining its neutral rating as they think that "operating in an attractive category with long-term sales opportunities is balanced by near-term comp and margin pressure."

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