Cramer’s Morning Thoughts: 20 Stocks to Watch

18. Ulta Beauty Inc. (NASDAQ:ULTA)

Number of Hedge Fund Investors: 46

According to the latest Morning Thoughts post, Ulta Beauty Inc. (NASDAQ:ULTA) was recently downgraded from a “buy” to a “hold” rating by TD Cowen due to concerns over slowing same-store sales, commonly known as comps in the retail sector, along with a rise in promotional activity.

“Ulta Beauty was downgraded to hold from buy at TD Cowen on slowing same-store sales, also referred to as comps in the retail industry, and increased promotional activity.”

Ulta Beauty, Inc. (NASDAQ:ULTA) presents a strong investment case, backed by its strategic advantages, despite some challenges noted in its Q2 FY2024 earnings report. Ulta Beauty, Inc. (NASDAQ:ULTA) saw a modest 0.9% increase in net sales, bringing in $2.55 billion, showing resilience in a tough retail environment, even though comparable sales fell by 1.2%. Key strengths include Ulta Beauty, Inc. (NASDAQ:ULTA)’s strong customer loyalty and its ability to drive higher transaction values per purchase.

Ulta Beauty, Inc. (NASDAQ:ULTA) is also expanding its reach, opening 17 new stores in Q2, which brings its total to over 1,400 locations. This helps Ulta Beauty, Inc. (NASDAQ:ULTA) strengthen its presence in both well-established and new markets. Financially, Ulta Beauty, Inc. (NASDAQ:ULTA) remains solid, with $414 million in cash and a commitment to rewarding shareholders. In Q2, Ulta Beauty, Inc. (NASDAQ:ULTA) repurchased nearly 550,000 shares.

To keep up with market shifts, Ulta Beauty, Inc. (NASDAQ:ULTA) is improving its online presence, introducing new brands, and increasing its marketing efforts. While it has adjusted its FY2024 outlook downward due to challenges like lower store traffic and rising costs, these appear manageable given Ulta Beauty, Inc. (NASDAQ:ULTA)’s strong market position and long-term strategy. This could present a good opportunity for investors to buy at a lower price, especially as Ulta Beauty, Inc. (NASDAQ:ULTA) continues expanding both its physical and digital footprint.

Carillon Eagle Mid Cap Growth Fund stated the following regarding Ulta Beauty, Inc. (NASDAQ:ULTA) in its Q2 2024 investor letter:

“Ulta Beauty, Inc. (NASDAQ:ULTA) operates a chain of beauty stores offering cosmetics, fragrance, skin, and hair care products. Management disclosed during the quarter at a conference that business was slowing more than expected and ultimately lowered guidance. This slowdown does not appear to be happening uniformly across the beauty landscape and we are concerned Ulta may be losing market share.”