Why Ulta Salon Shares Were Pummeled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of beauty products retailer Ulta Salon (NASDAQ: ULTA  ) tumbled as much as 13%, after announcing the resignation of its CEO Chuck Rubin, and receiving a downgrade from Credit Suisse.

So what: Ulta Salon made the announcement earlier today that Chuck Rubin would be stepping down as CEO of more than two years in order to join Michaels Stores. Rubin's resignation comes just four months after chief financial officer, Bruce Hartman, resigned, as well. Without a long-term CEO and CFO currently in place, Credit Suisse downgraded Ulta Salon to "neutral" from "outperform" on that near-term uncertainty. Ulta Salon, in order to stem the negativity, also reported its preliminary fourth-quarter results, which include a 30% rise in revenue, to $757 million, an 8% jump in same-store sales, and EPS in the range of $0.96 to $0.98. Wall Street had been projecting revenue of $752.7 million, and $0.98 in EPS.

Now what: Although beauty supply products are usually resistant to economic swings, I have to admit that both Ulta's valuation (forward P/E of 26), and its lack of a long-term solution at CEO and CFO, do make it somewhat of a gamble at these levels. If Ulta's growth continues to be noticeably slow, then there could be further downside still to come.

Craving more input? Start by adding Ulta Salon to your free and personalized Watchlist so you can keep up on the latest news with the company.

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