Shares of cosmetics retailer Ulta Beauty (ULTA -0.37%) dropped by 22.6% in April, according to data provided by S&P Global Market Intelligence. And management has no one to blame but itself.
Ulta Beauty already had investors down in the dumps in March. On March 14, the company reported completed financial results for its fiscal 2023. The stock slid as its guidance for 2024 came in behind expectations.
However, on April 3 at an investor conference, Ulta Beauty's management said that spend for cosmetic products was off to a slower start this year than expected. Therefore, the company's upcoming first-quarter results could be at the low end of its guidance, and investors were disappointed with guidance to begin with.
Ulta Beauty stock sold off hard after these comments and continued drifting lower for the rest of the month.
Just how bad is it?
Investors disliked the commentary from Ulta Beauty's management so much that even shares of rival cosmetics companies including e.l.f. Beauty sold off. But management didn't predict the end of cosmetic spend altogether. It merely expressed that the year was off to a slower-than-expected start.
For fiscal 2024, Ulta Beauty had shared its belief that same-store sales would increase by just 4% to 5%. However, it sounds like it will be closer to 4% based on management's most recent comments. In my view, this is hardly an insurmountable headwind for the company, considering sales are still growing.
Additionally, Ulta Beauty's management had expected its operating-profit margin to go down from its 16% margin in fiscal 2023. However, it's still expecting an operating margin of about 14% in fiscal 2024, which remains strong compared to other retail businesses.
Therefore, I'd say that things aren't too bad for Ulta Beauty. But between the negative reaction to its earnings report and the conference commentary, Ulta Beauty stock is down 20% year to date and down 31% from its 2024 high.
Is this a buying opportunity?
From an earnings perspective, Ulta Beauty stock has only been cheaper one time in the past decade -- a brief moment during the worst of the stock market crash at the start of the COVID-19 pandemic. That one-time anomaly aside, Ulta Beauty's price-to-earnings ratio of 15 is the cheapest valuation many investors have seen with this stock.
ULTA PE Ratio data by YCharts.
Ulta Beauty has a lot for investors to like, including a large retail footprint, a loyal customer base, and a history of profitable growth. The company should make it through this slower season just fine and continue many of the things that have driven its strong, past-stock performance. Therefore, I don't think this is something that investors need to overthink: Ulta Beauty is a good business, and the stock trades at a cheap price, which makes it a stock worth buying today after the market's overreaction in April.
