Categories Analysis, Consumer

Earnings Preview: Ulta Beauty (ULTA) likely to report positive Q4 results

The company has been on a digital transformation drive to upgrade its infrastructure and deliver a better shopping experience to customers

Ulta Beauty, Inc. (NASDAQ: ULTA), which operates a chain of stores that sell cosmetics and personal care products, has benefitted significantly from the post-pandemic recovery in the demand for consumer discretionary products. Currently, one of the key priorities for the company is to enhance customer experience by ramping up its digital capabilities and remodeling stores. The retailer will be reporting its fourth-quarter results on March 14.

ULTA is one of the top-performing stocks and is considered expensive, especially after setting a new record a few weeks ago. It has grown about 46% in the past five months alone. The stable consumer demand and continued innovation make the stock an attractive investment, despite the high valuation. Considering the positive outlook on the industry and the favorable shift in consumer spending patterns, the stock likely has more room to grow.

What to Expect

When the beauty retailer reports fourth-quarter results on Thursday, at 4.05 p.m. ET, the market will be looking for earnings of $7.52 per share, representing a 13% increase from $6.68 per share the company earned in the same period a year earlier. On average, analysts estimate revenues of $3.53 billion for the January quarter, compared to $3.23 billion in Q4 2022.

Interestingly, there has been strong resilience in the demand for beauty products and personal care items post-pandemic, despite elevated inflation and pressure on consumer spending. Sales increased steadily as market reopening picked up and people ventured out for work and shopping, a trend that continues to gather momentum.

Comps Trend

While growth is normalizing to historical levels, there has been a continued deceleration in comparable sales growth lately. That can be attributed mainly to the strong base effect – growth was exceptionally high in the comparable year-ago periods when cosmetics and beauty products gained prominence, post-pandemic. For the whole of 2023, the management projects net sales in the range of $11.10 billion to 11.15 billion, and comparable sales growth of 5.0-5.5%. Earnings per share are expected to be between $25.20 and 25.60.

“Guests are moving effortlessly between physical and digital channels, and we are investing to enhance the guest experience across all touch points. We have been on a multiyear digital transformation journey to upgrade our infrastructure and deliver a more engaging and seamless digital guest experience while also positioning future growth. In August, we completed a significant step in this process with the transition of our digital commerce experience, including cart motions, checkout, and member account data to our new architecture,” the company’s CEO Dave Kimbell said at the Q3 earnings call.

Q3 Results

In the third quarter, net sales increased 6.4% annually to $2.5 billion, aided by a 4.5% growth in comparable sales and strong new store performance. Net income, meanwhile, decreased to $249.5 million or $5.07 per share in Q3 from $274.6 million or $5.34 per share a year earlier. Over the past four years, the company delivered better-than-expected quarterly earnings and sales consistently.

On Monday, shares of Ulta Beauty opened slightly above $540, which is higher than the 52-week average of $465.15. The stock traded higher during the session.

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