Such A Beauty: Here’s Why Wall Street Continues To Love Ulta

During last month’s Spending Breakdown, I noted that in October, consumers took the mantra “treat yo self” to heart to the tune of $32 billion. While it’s hard to say what one thing inspires the trend, it’s a safe bet from my end (and personal experience) that part of what’s at play is a desire by consumers to continue to “self-improve” or “glow up” despite their circumstances. Whatever the driver, one key player in this space is Ulta

ULTA
Beauty.

On December 2, the company announced record third-quarter earnings and provided upbeat guidance. During the call, CEO Dave Kimbell reported net sales had risen 28.6% to a record $2 billion. Meanwhile, operating profit increased to 14.2% of sales and diluted earnings-per-share increased to $3.94 apiece.

“In addition to producing these excellent financial results, we also delivered strong operational results,” he said. “We continued to increase our market share in Prestige Beauty based on dollar sales for the 13 weeks ended October 30, 2021, compared to the same period last year. We increased the number of members in our Ultimate Rewards loyalty program by 13% to a record 35.9 million members and returned to pre-pandemic member penetration levels.” 

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Like many of its fellow retailers, Ulta is also making it a point to show up for consumers in both the physical and digital sales spaces. Regardless of where a consumer falls in the “bricks v. clicks” debate, Ulta remains prepared to provide consumers with both experiences. At the end of the third quarter of fiscal 2021, Ulta operated 1,302 stores totaling 13.7 million square feet thanks in part to expansion measures. During the same quarter, Ulta opened up seven new stores, moved two storefronts, remodeled three, and closed one. During the first nine months of fiscal 2021, Ulta opened 42 new stores, moved four, remodeled eight, and closed four. Meanwhile, shares are up overall this month.

This particular moment isn’t the first time a beauty supplier has pinged on my radar. Last year, the company’s competitor Sally Beauty piqued my interest because once it reopened in a post-lockdown society, shoppers flocked to the store in search of beautification treatments that were more social distance friendly to successfully execute. With several COVID-19 related issues looming (variants) it’s easy enough to assume that more consumers will once again consider safer ways to keep their routines going with at-home options continuing to capture the market. 

Switching gears back to Ulta, advisors agree that it is enjoying an unstoppable season. Dana Telsey of Telsey Advisory Group writes, “For the second consecutive quarter, topline strength was driven by double-digit year-over-year comp growth across all major categories, while fragrance, bath, haircare, and skincare all posted double-digit comp increases over the LLY period.”

Regarding quarterly results, Telsey continues, “The third quarter results, in our view, are yet another encouraging sign that the beauty recovery continues to outpace expectations and Ulta remains well-positioned with a compelling assortment, strong and improving digital/omni-channel presence, and solid industry fundamentals to support long-term growth.”

Similarly, Oliver Chen of Cowen & Company

COWN
writes, “As ULTA continues to show solid momentum across categories, we believe the company’s category management execution and promotional optimization will be important to monitor. Furthermore, we believe a consumer focus on sustainability and transparency; the evolution of broader wellness themes, products, and services; and the reinvention of the “connected” store experience will be important themes to drive long term success.”

Author’s Note: As of their December 3 reports related to Ulta, Telsey Advisory Group recommended the company at Outperform with a $475 price target and Cowen & Company recommended Ulta at Outperform with a $440 price target.