JP Morgan analyst Christopher Horvers reiterated an Overweight rating on Ulta Beauty, Inc. (NASDAQ:ULTA), lowering the price forecast to $450 from $544.

The company will report its earnings results tomorrow after the closing bell. Horvers lowered the company's comp forecast to flat for the second quarter, as most investors expect a -1% outcome.

The analyst has reduced the comps estimate for the second half of 2024 to +1%, with a revised second-quarter EPS of $5.46 and FY24 EPS of $25.10, compared to the consensus estimates of $5.50 and $25.36, respectively.

According to the analyst, expectations for promotions, merchandise margins, and Ulta's ability to enhance overall non-occupancy gross margins in the latter half of the year are too low.

This comes as Ulta navigates past last year's price and cost challenges and undertakes a full private label product reset, alongside improving supply chain efficiencies.

The analyst also noted that Ulta reduced its merchandise margin outlook during its first-quarter call. Missing sales targets and experiencing a gross margin shortfall due to promotions can typically significantly lower a retail stock's valuation.

On the positive side, the analyst pointed out that the category is growing faster than GDP, with Ulta gaining market share and having a unique advantage due to its in-depth consumer insights, Horvers notes.

Ulta stands out as the only national beauty retailer offering both prestige and mass products, alongside services and a leading hair care assortment.

Additionally, department stores are expected to continue losing market share in this category over the long term, the analyst writes.