Ulta Beauty (ULTA) Looks Promising: Stock Up 15% in 6 Months

Ulta Beauty, Inc. ULTA appears to be in robust shape, with its shares up 15.2% in the past six months compared to the industry’s decline of 11.4%. The beauty products retailer has been benefiting from its omnichannel strength. Also, the skincare category has been gaining on consumers’ rising interest in self-care. These upsides, along with cost-containment efforts, aided fourth-quarter fiscal 2021 results, wherein the top and bottom lines grew year over year and beat the Zacks Consensus Estimate.

Such factors, together with a focus on six key priorities, bode well for Ulta Beauty amid high SG&A costs and soft makeup trends. Let’s delve deeper into the aspects driving this Zacks Rank #2 (Buy) company.

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Main Upsides

Ulta Beauty has been enriching its omnichannel experience through launches like Beauty to Go, options like same-day delivery (in roughly 200 stores) and unique salon services across stores, among others. In fiscal 2022, ULTA also launched its new alliance with Target TGT and opened 100 Ulta Beauty at Target locations. Target has a trailing four-quarter earnings surprise of 21.3%, on average. TGT has an expected earnings per share (EPS) growth rate of 16.5% for three to five years. This general merchandise retailer sports a Zacks Rank #1 (Strong Buy) at present. The Zacks Consensus Estimate for Target’s current financial-year sales suggests growth of 3.5% from the year-ago period’s reported figure.

Coming back to Ulta Beauty, the company launched The Wellness Shop in the fourth quarter, a cross-category platform providing guests self-care for the mind, body and spirit in more than 450 stores as well as online. In the fourth quarter, e-commerce sales came above expectations, increasing slightly on top of the year-ago quarter’s 70% growth. The company’s buy online, pick up in store (BOPIS) continued to gain traction in the quarter. BOPIS sales rose 20% and contributed 17% to e-commerce sales in the quarter. In fact, between BOPIS and the company’s ship-from-store facilities, nearly 28% of digital orders were completed by stores. The company introduced six stores in the fourth quarter and plans to open 50 net new stores in fiscal 2022 along with carrying out 35 store remodeling and relocation projects.  

Moving on, Ulta Beauty has been seeing market share gains in major beauty categories for a while now, with skincare standing out due to consumers’ rising interest in self-care and the company’s focus on newness and innovation. The trend continued in the fourth quarter of fiscal 2021, wherein skincare sales saw double-digit growth once again. The skincare category’s growth was backed by moisturizers, cleansers and sun care. Guests’ increased focus on self-care and maintaining healthy skincare routines works well for this category. Apart from these, ULTA has been seeing strength in the fragrance and haircare category, with fragrance and bath being the best performing category in the fourth quarter.

Key Priorities

Ulta Beauty has been focused on its six strategic priorities. The company’s foremost priority is to strengthen its omnichannel business and explore the potential of the physical and digital facets. Ulta Beauty has made significant progress on this front as evident from its solid e-commerce initiatives. Also, the company is undertaking various tools to enhance the experience of guests, such as offering a virtual try-on tool and in-store education and reimagining fixtures, among others. Thirdly, the company concentrates on offering customers a curated and exclusive range of beauty products through innovation. Fourthly, the company is focused on deepening customer engagement by boosting rewards and loyalty programs. Fifthly, management is committed to optimizing its cost structure. Apart from these, the company strives to boost organizational talent and strengthen culture.

On its fourth-quarter fiscal 2021earnings call management stated that it envisions net sales growth of 5-7% on a CAGR basis over the next three years (with fiscal 2019 being the base year). It expects the operating margin in the band of 13%-14% and EPS growth in the low double-digit range on a CAGR basis.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

A Look at Q4

Fourth-quarter fiscal 2021 results were backed by solid consumer demand and the benefits of the company’s differentiated model. During the quarter, all of Ulta Beauty’s major categories delivered double-digit year-over-year comp growth, led by the cycling of the prior year's pandemic-led disruption, the solid execution of holiday plans and product newness. Net sales surged 24.1% year over year to $2,729.4 million and beat the Zacks Consensus Estimate of $2,703.4 million. The uptick can be attributed to the favorable impact of solid consumer confidence and reduced pandemic-induced restrictions. Comparable sales or comps rose 21.4% against a decline of 4.8% recorded in the prior-year quarter. Transactions in the quarter gained on double-digit growth and in-store traffic, while average tickets benefited from the increased higher average selling price and units per transaction.

Ulta Beauty posted EPS of $5.41, which beat the Zacks Consensus Estimate of $4.61. In the fourth quarter of fiscal 2020, adjusted EPS amounted to $3.41. Management expects to keep witnessing a healthy recovery in the Beauty category through fiscal 2022 as consumers continue to maintain their self-care routines and engage in increased leisure and social activities. The company’s fiscal 2022 guidance takes into account the projection of the Beauty category’s growth while lapping an impressive performance in fiscal 2021. Management expects fiscal 2022 net sales in the range of $9.05-$9.15 billion. Comparable sales are expected to rise in the range of 3-4%.

Other Retail Stocks to Bet on

The Kroger CO. KR currently sports a Zacks Rank #1. Kroger has a trailing four-quarter earnings surprise of 22.1%, on average. KR has an expected EPS growth rate of 9.9% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Kroger’s current financial-year sales suggests growth of 2.4% from the year-ago period’s reported figure.

Dillard's, Inc. DDS, a retail department stores operator, currently has a Zacks Rank #2. Dillard's has a trailing four-quarter earnings surprise of 294.5%, on average.

The Zacks Consensus Estimate for Dillard's current financial-year sales suggests growth of 4.7% from the year-ago period’s tally. DDS has an expected EPS growth rate of 14.6% for three to five years.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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