With Shoppers Scrimping For Makeup On A Budget, Ulta Reports A Strong Holiday Quarter

As shoppers continued to save room in their tighter budgets during the holiday season for beauty products, Ulta Beauty beat Wall Street's expectations for its holiday-quarter earnings and revenue by $5 million.

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It has become a trend for people to buy more beauty products during the holiday season, as they prepare for parties and give them as gifts. In a statement to Trade Algo, CEO Dave Kimbell said, "We describe it as 'gifting and glamming.'"

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Despite inflation shrinking consumer wallets and making necessities such as groceries more expensive, the beauty sector has become one of the most popular categories of spending despite affordable luxuries. It is Kimbell's opinion that consumer spending across all income levels was strong in the fourth quarter and that, despite higher prices on the company's products, customers are not trading down to cheaper options in order to save money.

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StreetAccount estimates that same-store sales grew 15.6% in the fourth quarter of 2018, which is slower than the 21.4% growth it posted in the same quarter the previous year, but still well above analysts' estimates for 8.4% growth, according to StreetAccount.

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There has been double-digit growth in sales of cosmetics, hair care, skin care, and fragrance products in all four categories in the fourth quarter of the year, according to Kimbell. Aside from that, he added that the wellness segment, which includes items such as nutritional supplements and silk pillowcases, is also growing as a result of the pandemic, which has led to an increased focus on self care.

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Gross profit, as measured as a percentage of net sales, remained flat compared to the year-ago quarter in part due to higher inventory shrinkage as a percentage of net sales. Organize retail crime is cited as the main reason for shrink in the retail industry, which, Kimbell says, is a "challenge that faces the whole industry."

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Compared with Refinitiv consensus estimates for the fourth quarter, which ended on Jan. 28, the company performed as follows:

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• Earnings per share: $6.68 vs. $5.68 estimated
• Revenue: $3.23 billion vs. $3.03 billion estimated

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From $289.4 million, or $5.41 per share, in the fourth quarter of 2021, net income jumped 17.8% to $340.8 million, or $6.68 per share.

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Considering the long-term prospects of the company, it is expected that its full-year revenue in 2023 will range from $10.95 billion to $11.05 billion and earnings per share will range between $24.70 and $25.40. According to Reputation, Wall Street was anticipating revenue of $10.74 billion and earnings per share of $24.25, according to Refinitiv, for the company in 2023.

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ULTA anticipates that most of that growth will take place in the first half of 2023 and then level off in the second half of the year. Even though the company is planning to decelerate its rate of price increases, Kimbell said, it is unlikely that higher prices will necessarily come down.

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There is also a plan to expand the company's footprint in the near future. There were twelve new stores opened in the fourth quarter and the company hopes to have between 25 and 30 new locations open by the end of 2023. Kimbell told Trade Algo that the ultimate goal is to open approximately 100 new stores within the next two years.

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The partnership between Ulta and Target is also set to be a source of further growth for the company. Ulta shop-in-shops are currently available in 350 Target locations across the country, and Kimbell said the company is on track to be in at least 450 more by the end of the year.

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The makeup seller is hoping to strengthen its digital footprint as well as its brick-and-mortar presence. The company is in the final stages of preparing its "digital store of the future," an effort to revamp its e-commerce platforms in order to meet the demands of tomorrow's shoppers.

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Ulta shares are up about 11% so far this year, outpacing the S&P 500, which is up about 2% year-to-date. As of Thursday's market close, Ulta shares are up about 11% so far this year.

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