Ulta Beauty, Inc. ULTA is benefiting from healthy traffic trends in the booming beauty space. The company is seeing market share gains in major beauty categories, with skincare standing out. The leading beauty retailer’s strong omnichannel presence is worth mentioning. However, a persistent rise in costs remains a threat.
Let’s delve deeper.
What’s Working in Ulta Beauty’s Favor?
Ulta Beauty is benefiting from healthy traffic trends, greater brand awareness and the expansion of its loyalty program. Management is on track with transformational initiatives, which are yielding. These factors boosted third-quarter fiscal 2023 results, with net sales rising 6.4% to $2,488.9 million on higher comparable sales, solid new store performance and an increase in other revenues. Comparable sales rose 4.5%, driven by a 5.9% improvement in transactions stemming from healthy traffic across all channels.
The company is seeing market share gains in skincare thanks to consumers’ rising interest in self-care and its focus on newness and innovation. The trend continued in the fiscal third quarter, wherein skincare was the company’s fastest-growing category. Results gained from strength in brands like Drunk Elephant, La Roche-Posay, Cetaphil, Dermalogica and COSRX. Guests’ increased focus on self-care and maintaining healthy skincare routines works well for the skincare category.
People are effortlessly moving between physical and digital channels as ULTA continues to invest in enhancing guest experience in all touch points. In August 2023, management concluded the transition of the digital commerce experience, which includes cart, promotions, checkout and member account data, to its new architecture. The modernization of its digital technology ecosystem is helping the company elevate and optimize existing guest experiences while driving digital innovation, utilizing a modern and agile approach.
Ulta Beauty is keen on enhancing its in-store experiences to drive spending, increase frequency and create loyalty. In the fiscal third quarter, the company launched a guest engagement model to enhance guest experience via real engagement, experiences and interactions. Management is on track to expand the Ulta Beauty at Target experience.
Is All Rosy For Ulta Beauty?
Rising SG&A expenses continue to hamper the company’s profitability. As a percentage of net sales, SG&A expenses came in at 26.6%, up from 25.5% in the fiscal third quarter. The downside was caused by increased corporate overheads related to strategic investments, deleverage of store payroll and benefits, increased store expenses and greater marketing expenses.
Also, Ulta Beauty is witnessing persistent margin pressure thanks to higher supply-chain costs and reduced merchandise margins, among other reasons. The company’s quarterly gross margin was 39.9%, down 130 basis points (bps) year over year on higher inventory shrink, reduced merchandise margins and elevated supply-chain costs.
Nevertheless, the upsides mentioned above are likely to keep ULTA well-positioned for continued growth in 2024.
The Zacks Rank #3 (Hold) company’s shares have increased 20.6% in the past three months compared with the industry’s growth of 18.5%.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
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