Ulta Beauty's (ULTA) fiscal second-quarter same-store sales growth is expected to top market estimates amid "solid underlying execution," potentially paving the way for an upgraded full-year earnings outlook, Deutsche Bank said Tuesday.
The brokerage expects the beauty retailer to post second-quarter same-store sales growth of 2.8% when it reports results Thursday. Wall Street is looking for a gain of 2.4%, according to Deutsche Bank.
"We expect Ulta's (second-quarter) results to demonstrate solid underlying execution over the past several months, pointing to a sequential acceleration in the (two-year) stack," Deutsche Bank analyst Krisztina Katai said in a note to clients.
The upcoming print can offer further proof of Ulta's ability to control expenses, with selling, general, and administrative expense growth expected to moderate to high-single digits in the second quarter and further to 3% or less in the second half of the year from mid-teens in the first quarter, according to the note.
"Combined with continued sales momentum, this supports our expectation for a ($0.20) increase to (full-year earnings-per-share) guidance," Katai said.
While the second quarter is Ulta's "most difficult compare," the debate likely has moved beyond whether the beauty retailer can "comp the comp" toward the quality and sustainability of its top-line momentum amid a more competitive beauty landscape, Katai said. The company's investors are "increasingly concerned" that it could need greater promotional intensity and pressure margins in order to maintain growth, according to the note.
Ulta's shares were down 1.3% in Tuesday afternoon trade, bringing its year-to-losses to 12%.
Last week, cosmetics maker Estee Lauder (EL) bumped up its fiscal 2027 operating margin outlook and set sales guidance in line with its preliminary views.
With the upcoming results, Ulta's management can also reinforce confidence that the company's growth continues to be "fundamentally healthy and sustainable," Katai said Tuesday.
"Product innovation across major partner brands appears to be improving, the exit of the [Target (TGT)] partnership creates an opportunity for sales recapture, and we expect increased contribution as newer growth avenues scale, including Wellness, TikTok Shop, Marketplace, UB Media, and international expansion," the analyst wrote.
Previously, Ulta and retailer Target said they mutually agreed not to renew their shop-in-shop partnership when the current deal concludes in August.
"We remain constructive on Ulta," Katai said Tuesday. "Beyond (the second quarter), we see a strong setup for 2027 as SG&A growth normalizes and higher-margin profit streams, particularly UB Media and Marketplace, become larger contributors to growth."
Last week, Oppenheimer said Ulta will likely meet second-quarter market expectations, though ongoing uncertainty and increasing US competition will prompt management to keep full-year forecasts unchanged.
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