Shares of Ulta Beauty (ULTA) plunged in early trading after reporting quarterly comparable sales that declined from last year. Ulta’s report comes as department stores are discounting high-end cosmetics and as consumers shift to shopping online and away from physical stores.

EARNINGS: After the market close on Thursday, Ulta reported second quarter earnings per share of $1.83 on revenue of $1.29B, beating analysts’ estimates of $1.78 and $1.28B, respectively. Comparable sales were up 11.7%, driven by 5.5% transaction growth and 6.2% growth in average ticket, but that figure was below the 14.4% SSS growth Ulta experienced last year. Looking ahead, Ulta forecast third quarter EPS of $1.63-$1.68, at the low end of analysts’ $1.68 consensus, on revenue of $1.331B-$1.353B, compared with estimates of $1.33B. Comp sales for Q3, including e-commerce, are expected to increase 9%-11%, below the year-ago increase of 16.7%. At the same time, Ulta raised its fiscal 2017 EPS growth view to the high 20% range from mid 20s and its FY17 SSS growth view to about 10%-11% from 9%-11%. Commenting on the quarter, Ulta said the company decided to prioritize earnings growth over comp sales growth, and, as a result, chose “not to run incremental promotions in July in order to comp over significant clearance activity” at the end of last year’s Q2. Management noted that the company expects online sales to grow 50%-60% vs. its previous 50% view. Additionally, as other retailers are closing stores, Ulta is adding locations, saying that it will open about 100 new stores this year and remodel 11 locations.

WHAT’S NOTABLE: Ulta’s earnings report comes amid a more difficult retail environment. In July, Oppenheimer analyst Rupesh Parikh downgraded Ulta to Perform citing “softer” commentary from L’Oreal (LRLCY) on its earnings call regarding trends in its North American beauty business, increasing promotional activity from the department store channel and more difficult year-over-year comparisons that “could now signal a potentially more challenging beauty backdrop going forward.” Additionally, online sites like Amazon (AMZN) are a threat. Amazon is said to be considering a partnership deal with Violet Grey, an “editorially driven online shopping destination” for luxury beauty products, according to a July report in WWD. Such a deal could potentially help Amazon land more prestige beauty brands, sources added to the publication at the time. Ulta also faces competition from department stores like Macy’s (M), which are discounting high-end cosmetics and offering rewards. “The rapidly evolving retail environment is not new and we have never been complacent,” Ulta CEO Mary Dillon said yesterday.