Analyst Note| David Swartz |
Narrow-moat Ulta Beauty continues to feel the effects of the pandemic as its comparable sales dropped 8.9% in 2020's third quarter. Yet, this result was much improved from the previous quarter’s same-store sales decline of 26.7%. We expect to increase our per share fair value estimate on Ulta of $214 by a low-single-digit percentage but view shares as overvalued. With more than 1,260 stores (that normally produce more than 80% of its sales), Ulta faces challenges from virus-related restrictions and consumers’ hesitancy to visit stores. The firm projected a fourth-quarter same-store sales decline of 12%-14%, in line with our prior estimate of a 13.0% drop.