William Blair downgrades Ulta on concerns over beauty category recovery

Investing.com - William Blair on Thursday downgraded Ulta Beauty Inc (NASDAQ:ULTA ). to "market perform" from "outperform," citing a slower-than-expected recovery in the beauty category and longer-term risks from online competition.

Analyst expressed doubts about the retailer's ability to meet 2025 growth targets and operating margin expectations set at its recently.

William Blair noted that while Ulta has reset expectations, the consensus view of a sharp recovery in beauty industry sales by early 2025 appears overly optimistic. The firm believes softness in the beauty sector, following pandemic-driven highs, is still in its early stages and that a significant rebound is unlikely until at least the second half of 2025.

“We also maintain that there is a longer-term risk embedded in the beauty category migration online, which is potentially in the most damning phase as it relates to retail cannibalization and drives heightened, more dynamic competition,” William Blair analyst Dylan Carden wrote in a note.

The report also flagged the growing shift toward online beauty shopping, which poses a systemic risk to brick-and-mortar retailers like Ulta. Analysts described the current phase of digital migration as “potentially the most damning” for traditional retail, driving heightened competition and retail cannibalization.

Source: Investing.com