Warren Buffett is cashing in: in the second quarter of 2024, Berkshire Hathaway - the legendary investor's holding company - sold shares worth USD 77.2 billion. Among other things, the investment company disposed of 390 million Apple shares. The high sales were offset by an investment volume of just USD 1.6 billion. Ulta Beauty was one of the few companies that Berkshire added to its portfolio during the reporting period. As at the middle of the year, Buffet's investment company held 690'000 shares in the US cosmetics chain. It is not known whether the stock market guru himself or his portfolio managers placed the purchase order. Nevertheless, the price reaction shows how strongly Wall Street continues to pay attention to the strategy of the legendary value investor. Since Berkshire Hathaway's investment was announced, Ulta Beauty has risen in price by almost 15%.
The mid-cap's price jump took place at a comparatively low level. Ulta Beauty had reached an all-time high as recently as March. However, shortly afterwards the NASDAQ share turned downwards and fell to its lowest level for around three years. At the end of May, the company, which was founded in 1990, shocked shareholders with an adjusted forecast. CEO Dave Kimbell now expects sales growth of between 2% and 3% for the 2024 financial year. He had previously targeted a range of 4% to 5%. The operating margin is expected to land in the range of 13.7% to 14.0%. The planned corridor was initially 30 basis points higher. In addition to the slowdown in growth, Ulta Beauty is struggling with declining profitability. Inflation and a vague economic outlook are having an impact on business in the almost 1'400 stores. Ulta Beauty also has to compete with rival Sephora, a subsidiary of luxury giant LVMH, in the retail trade for cosmetics, fragrances and skin and hair care. At the same time, e-commerce giant Amazon is increasingly pushing into the high-quality beauty products segment.
The CEO is not deterred. "We have a clear plan to accelerate our momentum," he said at the latest presentation of figures. In addition to a large and modern store network, he is focusing on digitalization and customer loyalty. The high inflow of funds is helping Kimbell to achieve this. Over the past three business periods, the company has generated a total operating cash flow of over USD 4 billion. Ulta Beauty also used this money for share buy-backs - the US industry giant spent more than USD 3.4 billion on the purchase of its own shares over the aforementioned period. The combination of a solid balance sheet, a strong market position and an attractive valuation could have attracted the attention of value investor Warren Buffett. In any case, the new major shareholder is likely to be a topic of discussion when Ulta Beauty presents its results for the second quarter of the current fiscal period on August 29, 2024.
Leonteq is issuing new soft-callable barrier reverse convertibles (BRC) on Ulta Beauty just in time for the payment date. The product is available in two different currencies. With a denomination in CHF, the guaranteed coupon is 10.06% p.a. Investors who allocate their capital in USD receive a quarterly distribution of 14.21% p.a. The other parameters are the same: the barrier is 65% of the initial level. As long as the underlying does not fall to or below this level, product holders receive the full nominal amount back at the end of the short term of one year. However, if Ulta Beauty uses up the buffer, the partial protection expires. From this point onwards, the investment would be exposed to the share price risk. Please also note the soft callable feature. Due to this structure, early termination and repayment of the BRC presented is possible.
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