JP Morgan: Strong Q2 Sales Performance Expected to Continue, Maintains "Overweight" Rating on Ulta Beauty (ULTA.US)

JP Morgan recently released a research report stating that the latest data shows that cosmetics retailer Ulta Beauty (ULTA.US) is expected to maintain strong sales performance in the second quarter. The firm maintains a "neutral" rating on Ulta Beauty. JP Morgan said that in the four weeks ending September 6, sales of beauty products in the food, drug and mass channels increased by 0.1%, while sales in the previous month increased by 1.0% (up 20 basis points). The trend in the third quarter ending September 6 is +0.2%, slightly slower compared to the updated data ending August 23 (+0.5%). JP Morgan added that NielsenIQ measures sales in the food, drug, and mass channels (not specifically for Ulta Beauty). However, Ulta Beauty's comparable store sales have a 69% correlation with NielsenIQ cosmetics trends and a 60% correlation with the overall beauty category. At the category level, four of the five categories tracked by the firm showed a slowdown, with the biggest declines in hand/body lotions and facial skincare, while perfume was the only category showing improvement. JP Morgan indicated that the quarter-over-quarter trend suggests a relatively flat growth rate of around 5%-7% in the third quarter. When compared with year-over-year and two-year compound trends, the data is generally consistent with that provided by NielsenIQ and Circana in the previous quarter, indicating a growth range of 5%-7%, which is stronger compared to market consensus expectations of +3.2% and the firm's estimate of +3%. This is in line with Ulta Beauty's recent comments - the company is "satisfied" with its performance in August and consumer spending patterns or category engagement have not changed. From a guidance perspective, comparable sales for the second half of the year are expected to be flat to low single-digit growth.