Ulta Beauty slumps as rising costs hit margins, TikTok push under new CEO in focus

By Neil J Kanatt

March 13 (Reuters) – Ulta Beauty’s shares fell the most in nearly two years on Friday as rising costs deepened margin fears, with its new CEO flagging potential impact from global conflicts while the cosmetic retailer pursues a TikTok-led digital push.

The company has leaned on premium celebrity brands such as Rihanna’s Fenty Beauty to attract younger and more affluent shoppers at a time when stubborn inflation and lingering economic worries continue to strain household budgets. While strong demand for trendy assortments supported an upbeat annual sales forecast, higher costs resulted in a muted profit outlook.

Ulta’s selling, general and administrative expenses jumped 23% in the December quarter, driven by higher incentive compensation and continued investments in marketing and Space NK, the British beauty chain it acquired last year.

While the quarter showed a “lack of flow-through” from strong sales to earnings, Ulta is taking a conservative approach to its outlook, J.P.Morgan analysts said.

Analysts at TD Cowen said a key risk remains around Ulta’s ability to deliver margin expansion with a largely fixed-cost store base as occupancy-related costs involving rent, property taxes, and remodels continue to pressure leverage.

CEO Kecia Steelman, who took charge in January 2025, also said on a post-earnings call that Ulta was “increasingly mindful of rising global conflicts that could impact economic conditions.”

Escalating tensions in the Middle East have driven up energy prices and disrupted global shipping, raising concerns of economic pressure on consumers. Ulta had opened its first store in Kuwait in November, although the company was not immediately available for comment on how its plans to expand operations in the UAE and Saudi Arabia this year may be impacted.

Ulta plans to launch an exclusive brand assortment on TikTok Shop to attract Gen Z and Gen Alpha shoppers and tap online beauty demand as competition intensifies from Target and Walmart.

“To Ulta’s credit, it is capturing share in what we believe is a larger beauty category migration online,” William Blair analysts said, adding they see an upside to the annual sales forecast.

At least eight brokerages cut price targets on the stock, which slid nearly 13% on Friday.

The company’s forward price-to-earnings multiple, a common benchmark for valuing stocks, was 21.62, compared with 29.53 for Estee Lauder and 19.84 for Elf Beauty, data compiled by LSEG showed.

(Reporting by Neil J Kanatt in Bengaluru; Editing by Arpan Varghese, Shreya Biswas and Shilpi Majumdar)