A slowdown in cosmetics sales in recent weeks shouldn't prevent two popular beauty brands from beating 1Q expectations.
Cosmetics firms ELF and Ulta could beat top-line estimates when they report earnings next week, brokers are anticipating.
Analysts at Canaccord are expecting strong sales data and “prestige” sales for the quarter, according to a note.
But they are keeping a sharp eye on guidance, given the recent slowdown in cosmetic sales over the last month.
ELF expected to outperform
Beauty brand ELF should report results that surpass the provided guidance, Canaccord noted.
Analysts are expecting to see sales growth of 48%, slightly below the Street's projection of 48.5%. Nevertheless, both estimates exceed the company's sales guidance range of 42% to 46%.
Based on these projections, Canaccord analysts have revised its earnings per share (EPS) estimate to $0.20, up from $0.19, which is again higher than the implied guidance range of $0.13 to $0.16.
“We anticipate ELF can continue to outperform guidance as the brand gains shelf space, sees strong demand across its portfolio due to its high-quality products sold at everyday pricing, and rolls out new and innovative products,” Canaccord wrote.
“Our checks continue to show strong sell-outs followed by restocking across the ELF portfolio and especially the newer products or ‘holy grail’ items.”
Ulta can "win in any environment"
Ulta, the specialty retailer, also has a positive earnings season to look forward to, at least that is according to the broker.
Canaccord’s estimates are again slightly ahead of consensus estimates, with sales expected to grow 12% compared to the 11.7% figure pegged by the Street.
In a note, analysts noted that cosmetics sales did start to fall off at the end of March and into April, but Ulta has historically outperformed this data.
As a result, Canaccord is raising its EPS estimate to $6.82 from $6.71, which is again ahead of the Street estimate of $6.81.
“With Ulta's assortment close to 50/50 mass versus prestige and leaning more into prestige recently, we believe Ulta can win in any environment as the retailer can update their assortment to match consumer needs,” analysts wrote.
“We would expect Ulta to reiterate full year 2023 guidance and a nice 1Q beat should set them up well to meet the guidance despite the recent slowdown in cosmetic sales data.”
What to look for:
Canaccord’s eyes will be on ELF’s guidance which is expected to be “conservative” for 2024. Brokers will also be paying attention to updates around shelf space, product innovation pipeline, and updates around the health of the consumer.
Key metrics to watch include shelf space gains across retail, gross margin expectations, retail versus online sales, and the brand’s product and innovation pipeline.
For Ulta, analysts are zeroing in on details about the promotional environment, demand for mass versus prestige products, which beauty categories have been performing well, updates on their loyalty program numbers, and any details around the health of the consumer.
Key metrics for Ulta include store comps gross margin expectations for the year in a more normalized promo environment, and updated comp expectations for the year.
Contact Angela at angela@proactiveinvestors.com
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