Ulta Downgraded As Beauty Market Slows

By Tonya Garcia Markets MarketWatch Pulse

Ulta Beauty Inc. was downgraded to market perform from outperform at BMO Capital Markets as the beauty sector slows. BMO analysts said Ulta has a lot of advantages, like digital competence and a loyalty program that can be monetized, but there are a number of challenges ahead. A sluggish beauty market would make it harder for older stores to gain market share; department stores are getting more promotional and launching their own beauty-focused loyalty programs; and Amazon.com Inc. is gaining in the mass beauty area and could be a threat on the prestige side with its Violet Grey partnership. Competition is also ramping up as Sephora moves into locations away from malls, and Macy's Inc. expands Bluemercury. BMO analysts led by Shannon Coyne believe Ulta will see its "competitive moat recede over the next 12-to-24 months." Ulta shares have sunk 9.3% in Friday trading and are down 17% for the year to date. The S&P 500 index is up 9.5% for 2017 so far.

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