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Stock Market News: AT&T Gets a Double Win; Ulta Looks Ugly

By Dan Caplinger – Aug 30, 2019 at 10:26AM

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Most major benchmarks posted modest gains Friday morning.

The stock market was mixed on Friday morning, setting itself up for a strong week to finish what's been a challenging month of August. Investors seemed reasonably optimistic that central banks globally would have room to keep supporting economic growth, and a lack of new fireworks on the trade front got a good reception. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI -1.62%) was up 51 points to 26,413. The S&P 500 (^GSPC -1.72%) picked up 2 points to 2,926, but the Nasdaq Composite (^IXIC -1.80%) declined 14 points to 7,960.

Among individual companies, AT&T (T -1.42%) got two pieces of favorable news that should bode well for its business going forward. Yet despite a large number of positive earnings reports from retail companies this week, salon specialist Ulta Beauty (ULTA -2.33%) shocked investors with results that failed to live up to high expectations.

Two good things for AT&T

Shares of AT&T were up a fraction of a percent as the mobile network giant made progress on two key fronts. One should help the company with its internal operations, while the other extends a valuable agreement with an important partner.

Rising stock charts superimposed over digital map of the world

Image source: Getty Images.

Very late Thursday evening, AT&T announced that it had reached tentative agreements with the Communication Workers of America District 3 union group, which covers about 20,000 AT&T workers in nine Southeastern states. The new five-year agreements involve AT&T's wireline network in the Southeast, as well as utility operations for the BellSouth Telecommunications unit and the AT&T Billing Southeast operation. The telecom titan hopes that the union will ratify the agreements in the near future, putting an end to tensions that led to a strike early in the week.

Meanwhile, AT&T also said it had reached an agreement with Lions Gate Entertainment's Starz network on carrying content. The move ensures that DIRECTV, AT&T TV, and U-verse customers will all have access to Starz programming under the multiyear deal.

The wireless telecom industry has been highly competitive for a long time, and AT&T has fought hard to ensure it can remain a leader in the space. Having its employees on its side is a key part of AT&T's future success, and the value of having the right content has never been higher. Investors hope that these moves will help power the dividend giant forward for years to come.

Ulta gets blemished

Shares of Ulta Beauty plunged 28% Friday morning after the beauty salon operator reported its second-quarter financial results. The retailer posted revenue growth of 12% on a 6.2% rise in comparable sales, and earnings per share climbed 12% from year-ago levels. Yet investors had wanted far more from the beauty specialist.

CEO Mary Dillon characterized the quarter as having "solid top-line performance" and praised Ulta's earnings growth. Yet she also pointed to "headwinds we are currently seeing in the U.S. cosmetics market" as being a primary factor in holding Ulta back from even faster growth.

Yet what threw shareholders into turmoil were Ulta's dramatic reductions to guidance for the full year. The company now expects sales to rise just 9% to 12%, with comparable-sales gains of 4% to 6%. Both figures are down markedly from previous projections, and the new earnings guidance for $11.86 to $12.06 per share was down by almost $1 per share from what Ulta anticipated three months ago.

It's been a while since Ulta failed to produce amazing results, and that's a big part of the shock that investors are feeling right now. Ulta still has plenty of potential, but it might take longer than expected to make it through the current rough patch and get itself growing at full speed again.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends LGF-A and LGF-B. The Motley Fool recommends Ulta Beauty. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$16.01 (-1.42%) $0.23
Ulta Beauty, Inc. Stock Quote
Ulta Beauty, Inc.
ULTA
$392.30 (-2.33%) $-9.37
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,590.41 (-1.62%) $-486.27
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,693.23 (-1.72%) $-64.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,867.93 (-1.80%) $-198.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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