Ulta's (NASDAQ:ULTA) Posts Q3 Sales In Line With Estimates, Stock Soars

Full Report / November 30, 2023

Beauty, cosmetics, and personal care retailer Ulta Beauty (NASDAQ:ULTA) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 6.4% year on year to $2.49 billion. On the other hand, the company's full-year revenue guidance of $11.13 billion at the midpoint came in slightly below analysts' estimates. It made a GAAP profit of $5.07 per share, down from its profit of $5.34 per share in the same quarter last year.

Ulta (ULTA) Q3 FY2023 Highlights:

  • Revenue: $2.49 billion vs analyst estimates of $2.47 billion (small beat)
  • Same-Store Sales were up 4.5% year on year (beat vs. expectations of up 3.1% year on year)
  • EPS: $5.07 vs analyst estimates of $4.97 (1.9% beat)
  • The company slightly raised its revenue guidance for the full year , $11.13 billion at the midpoint (also raised same-store sales and EPS guidance)
  • Free Cash Flow was -$177.1 million compared to -$50.7 million in the same quarter last year
  • Gross Margin (GAAP): 39.9%, down from 41.2% in the same quarter last year (slight beat)
  • Store Locations: 1,374 at quarter end, increasing by 31 over the last 12 months

Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ:ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.

Given its variety in both price point as well as product, Ulta serves as a one-stop-shop for beauty. The core customer is a middle to higher-income woman across a variety of ages. This customer has specific needs or tastes in beauty that may not be served by the narrower selection of a department store or mass merchandise retailer.

A typical store is around 10,000 square feet. Key sections include fragrance, makeup, skincare, and haircare. The makeup section tends to be the largest, and most sections allow customers to try out a variety of products before purchasing. In addition to these sections, stores may also offer salon and spa services, where customers can receive professional haircuts, color treatments, and waxing. Ulta also has an e-commerce presence, featuring not just products but reviews and tutorials, that the company has been investing in since 2008.

The brand selection in Ulta stores is diverse and constantly evolving based on customer tastes and broader trends in beauty. MAC, Clinique, and Urban Decay are globally-recognized brands that can be found in stores, for example. Additionally, there are brands exclusive to Ulta as well as emerging ones like Fourth Ray Beauty.

Beauty and Cosmetics Retailer

Beauty and cosmetics retailers understand that beauty is in the eye of the beholder, but a little lipstick, nail polish, and glowing skin also help the cause. These stores—which mostly cater to consumers but can also garner the attention of salon pros—aim to be a one-stop personal care and beauty products shop with many brands across many categories. E-commerce is changing how consumers buy cosmetics, so these retailers are constantly evolving to meet the customer where and how they want to shop.

Retailers specializing in beauty products include Sally Beauty (NYSE:SBH) and Bath & Body Works while department stores such as Kohl’s (NYSE:KSS) and Macy’s (NYSE:M) typically feature large cosmetics and fragrance sections.

Sales Growth

Ulta is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 10.8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and grew sales at existing, established stores.

Ulta Total Revenue

This quarter, Ulta grew its revenue by 6.4% year on year, in line with Wall Street's estimates. in line with Wall Street's expectations. Looking ahead, analysts expect sales to grow 6.5% over the next 12 months.

Number of Stores

When a retailer like Ulta is opening new stores, it usually means it's investing for growth because demand is greater than supply. Ulta's store count increased by 31 locations, or 2.3%, over the last 12 months to 1,374 total retail locations in the most recently reported quarter.

Ulta Operating Retail Locations

Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 2.9% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

Ulta's demand has outpaced the broader consumer retail sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 13.2% year on year. This performance suggests that its steady rollout of new stores could be beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its products.

Ulta Year On Year Same Store Sales Growth

In the latest quarter, Ulta's same-store sales rose 4.5% year on year. By the company's standards, this growth was a meaningful deceleration from the 14.6% year-on-year increase it posted 12 months ago. We'll be watching Ulta closely to see if it can reaccelerate growth.

Gross Margin & Pricing Power

Ulta has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it's averaged an impressive 42.9% gross margin over the last eight quarters. This means the company makes $0.43 for every $1 in revenue before accounting for its operating expenses. Ulta Gross Margin (GAAP)

Ulta produced a 39.9% gross profit margin in Q3, marking a 1.3 percentage point decrease from 41.2% in the same quarter last year. One quarter of margin contraction shouldn't worry investors as a retailers' gross margins can often change due to factors such as product discounting and dynamic input costs (think distribution and freight expenses to move goods).

Operating Margin

Operating margin is an important measure of profitability for retailers as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

This quarter, Ulta generated an operating profit margin of 0%, down 15.5 percentage points year on year. We can infer Ulta was less efficient with its expenses or had lower leverage on its fixed costs because its operating margin decreased more than its gross margin.

Ulta Operating Margin (GAAP)

Zooming out, Ulta has exercised operational efficiency over the last eight quarters. The company has demonstrated it can be wildly profitable for a consumer retail business, boasting an average operating margin of 13.9%. However, Ulta's margin has declined by 4.7 percentage points year on year(on average). Although this isn't the end of the world, some investors were likely hoping for better results.


Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q3, Ulta reported EPS at $5.07, down from $5.34 in the same quarter a year ago. This print beat Wall Street's estimates by 1.9%.


Between FY2019 and FY2023, Ulta's adjusted diluted EPS grew 80.2%, translating into a remarkable 20% average annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 7.8% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.

Ulta burned through $177.1 million of cash in Q3, representing a negative 7.1% free cash flow margin. The company reduced its cash burn by 249% year on year.

Ulta Free Cash Flow Margin

Over the last two years, Ulta has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 7.9%, quite impressive for a consumer retail business. However, its margin has averaged year-on-year declines of 2.7 percentage points. If this trend continues, it could signal that the business is becoming slightly more capital-intensive.

Key Takeaways from Ulta's Q3 Results

Sporting a market capitalization of $20.68 billion, more than $121.8 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Ulta is attractively positioned to invest in growth.

Same-store sales posted a convincing beat, although revenue only narrowly topped expectations this quarter. Profitability was sound, leading to a nice EPS beat in the quarter. The company raised its full year outlook for important metrics such as same-store sales, revenue, and EPS. Finally, management commentary in the release was optimistic, citing healthy traffic trends and a good setup for the important holiday shopping season. Zooming out, we think this was a solid quarter, showing that the company is staying on target. The stock is up 9.4% after reporting and currently trades at $466.03 per share.

Is Now The Time?

Ulta may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We think Ulta is a good business. First off, its revenue growth has been decent over the last four years. On top of that, its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cash cushion, and its strong operating margins show it's a well-run business.

Ulta's price-to-earnings ratio based on the next 12 months is 16.0x. There are definitely a lot of things to like about Ulta, and looking at the consumer landscape right now, it seems the company trades at a pretty interesting price.

Wall Street analysts covering the company had a one-year price target of $505.6 per share right before these results, implying that they saw upside in buying Ulta even in the short term.

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