ULTA Keeps on Strengthening its Leadership

Ulta Beauty (ULTA) reported another strong quarter last week, continuing to strengthen its leadership in the market for beauty products.

I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

Gaining Market Share

Here’s a comment from Dave Kimbell, chief executive officer of Ulta, following the release of the company’s Q3 results:

“The Ulta Beauty team delivered outstanding results again this quarter. For the third quarter, we delivered record sales and earnings, increased our market share, and expanded our Ultamate Rewards loyalty program to nearly 36 million members.” “This strong third quarter performance reflects the strength and resiliency of the Beauty category, the power of the Ulta Beauty differentiated model, and the impact of our winning culture and team.”

This comment echoes a similar comment Kimbell made following the company’s release of Q2 results:

“This performance reflects the recovery of the beauty category, investments and choices we’ve made over the last year to adapt to the market disruption and strengthen our leadership position, and the ongoing efforts of our associates to deliver great experiences for our guests. Our value proposition is strong, and we are evolving and innovating to lead in the new beauty landscape, capture additional market share, and drive profitable growth.”

Net sales for Q3 came in at $2 billion, up from $1.6 billion a year ago, getting a boost from the opening of the economy, which brought consumers back to the company’s stores.

As a result, comparable sales rose 25.8%, while gross profit rose to $789.5 million, from $545.5 million in the third quarter of fiscal 2020. Meanwhile, the gross profit margin increased to 39.6%, up from 35.1% in the third quarter of fiscal 2020.

All numbers beat analysts’ estimates, and the company raised its guidance for the year.

The solid Q3 sales follow strong Q2 and Q1 sales, at a leadership transition for the company, meaning the new leadership has been doing a great job in maintaining the company’s growth momentum.

Wall Street was pleased with Ulta’s Q1, Q2 and Q3 results. Its shares have soared 45.9% year-to-date.

Analyst’s Take

The 21 analysts following the stock are moderately optimistic for Ulta’s shares over 12 months. The stock has a Moderate Buy rating, based on 13 Buys and eight Holds. Ulta’s average price target of $451.95 implies 9.7% upside potential, with a high forecast of $516 and a low estimate of $365.

TipRanks assigns a Smart Score of 9 out of 10 to the stock, down from 10 three months ago, citing a decreased hedge fund activity, insider selling, and negative sentiment among investors.

John Zolidis of Quo Vadis Capital, a long-term follower of Ulta, is optimistic about the company’s shares. “We believe ULTA is positioned well for a strong Holiday season and believe the message from results will be positive,” Zolidis says. “We see the stock as fully valued at current levels but believe shares should head higher as long as we assume omicron shocks remain limited.” 

On the long side of the market, the stock remains an excellent short-term trade, provided that the Fed’s tapering and the spread of the Omicron variant of COVID-19 won’t sour investor appetite for growth stocks.

Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any of the securities mentioned in this article.