2 Retailers in Focus After Earnings

Gap and Ulta Beauty both reported encouraging first-quarter earnings results

The retail sector is booming today, with the SPDR S&P Retail ETF (XRT) up 0.5% at last check. Driving the gains are sector stalwarts Gap Inc (NYSE:GPS) and Ulta Beauty Inc (NASDAQ:ULTA), both moving higher as investors use their earnings reports to gauge how U.S. consumers are spending amid higher-than-usual inflation.

Gap stock is up 20.5% to trade at $27.03, pacing for its third-straight win and best single-session gain since November. The apparel retailer’s first-quarter report included earnings, revenue, and same-store sales that all bested analysts estimates. What’s more, the company hiked its outlook for the fiscal year ending in February.

No less than 10 covering brokerages lifted their price targets on GPS, including Guggenheim’s adjustment up to $35 from $25. Options volume is running at nine times the average intraday amount, with 26,000 calls and 5,055 puts across the tape so far. New positions are opening at the top three most popular contracts, led by the weekly 5/31 25.50-strike call.

Ulta Beauty stock was last seen 0.9% higher to trade at $389.22, and earlier traded as high as $421.21. The cosmetics retailer reported first-quarter earnings that beat estimates, though revenue missed the mark and the company lowered its sales outlook.

At least six analysts cut their price targets on ULTA after the event, though all still recommend objectives of more than $500 — a 28.5% premium to the equity’s current perch. So far, 11,000 calls and 5,035 puts have traded hands so far. The most activity is taking place at the weekly 5/31 410-strike call.

On the charts, Ulta Beauty stock bottomed at $376 last week, completing a 34.6% drawdown from its March 14 record high of $574.76. Now, the shares are testing their declining 20-day moving average, a trendline that halted a mid-month rally. Year to date, ULTA is down 19.8%.

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