Ulta Beauty Stock Suffers After Ugly Earnings

Ulta also lowered its full-year forecast

by Lillian Currens

Published on Aug 30, 2019 at 10:21 AM

Makeup retailer Ulta Beauty Inc (NASDAQ:ULTA) has taken a nosedive today, after the firm reported second-quarter earnings and revenue below analysts' estimates. The firm also slashed it full-year same-store sales and profit forecast, citing ebbing demand for the cosmetics market. ULTA stock, at last check, is down 24.9% at $254 -- on course for its biggest one-day loss on record. 

The plummet has the equity trading back near its January lows, and just atop its year-to-date breakeven. After hitting an all-time high of $368.83 in late July, the security pulled back to test its footing atop the $320 level -- home to its 200-day moving average. Today, however, ULTA stock is set to breach this trendline for the first time in eight months.

The dramatic dip has analysts running in with bear notes. Morgan Stanley downgraded the shares to "equal weight," and more could be on the horizon, considering the 13 "buy" or better ratings on the table, compared to only four "holds." So far, at least 11 analysts have slashed their price targets on ULTA, including Stifel, which cut its target to a Street low of $250.

Short sellers are likely cheering today's dismal earnings reaction, though ULTA is on the short-sale restricted list. These pessimistic positions surged roughly 20% in the last reporting period. The 3.37 million shares sold short represent 6% of the stock's available float. 

Options bulls, on the other hand, could be in for a shock, with ULTA sporting a 10-day call/put volume ratio of 1.5 on the the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 85th percentile of its annual range, too, suggesting an uptick in bullish bets ahead of ULTA's earnings report.

However, one point of potential consolation for ULTA longs: the stock tends to shine in September. In fact, Ulta Beauty has been the best S&P 500 stock to own in the month of September, looking back 10 years. More specifically, the stock has gained 13.2%, on average, and has ended higher 90% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

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