Ulta (ULTA) Research Report: Q1 CY2024 Update

Full Report / May 30, 2024

Beauty, cosmetics, and personal care retailer Ulta Beauty (NASDAQ:ULTA) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 3.5% year on year to $2.73 billion. On the other hand, the company's full-year revenue guidance of $11.55 billion at the midpoint came in 1.4% below analysts' estimates. It made a GAAP profit of $6.47 per share, down from its profit of $6.88 per share in the same quarter last year.

Ulta (ULTA) Q1 CY2024 Highlights:

  • Revenue: $2.73 billion vs analyst estimates of $2.73 billion (small miss)
  • EPS: $6.47 vs analyst estimates of $6.28 (3% beat)
  • The company dropped its revenue guidance for the full year from $11.75 billion to $11.55 billion at the midpoint, a 1.7% decrease
  • Gross Margin (GAAP): 39.2%, down from 40% in the same quarter last year
  • Free Cash Flow of $68.32 million, down 65% from the same quarter last year
  • Locations: 1,395 at quarter end, up from 1,359 in the same quarter last year
  • Same-Store Sales rose 1.6% year on year (9.3% in the same quarter last year)
  • Market Capitalization: $18.13 billion

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 10.3% over the last five years was decent as it opened new stores and grew sales at existing, established stores.

Ulta Total Revenue

This quarter, Ulta's revenue grew 3.5% year on year to $2.73 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 5% over the next 12 months, an acceleration from this quarter.

Same-Store Sales

Ulta's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 8.8% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Ulta is reaching more customers and growing sales.

Ulta Year On Year Same Store Sales Growth

In the latest quarter, Ulta's same-store sales rose 1.6% year on year. By the company's standards, this growth was a meaningful deceleration from the 9.3% year-on-year increase it posted 12 months ago. We'll be watching Ulta closely to see if it can reaccelerate growth.

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. Since last year, Ulta's store count increased by 36 locations, or 2.6%, to 1,395 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 2.8% 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.

Gross Margin & Pricing Power

Gross profit margins are an important measure of a retailer's pricing power, product differentiation, and negotiating leverage.

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 43.1% 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's gross profit margin came in at 39.2% this quarter, flat with the same quarter last year. This steady margin stems from its efforts to keep prices low for consumers and signals that it has stable input costs (such as freight expenses to transport goods).

Operating Margin

Operating margin is a key profitability metric for retailers because 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 14.7%, down 2.1 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 15%. However, Ulta's margin has slightly declined by 1.2 percentage points year on year (on average). This shows the company has faced some small speed bumps along the way.


We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

Ulta's EPS grew at a decent 17.4% compounded annual growth rate over the last five years, higher than its 10.3% annualized revenue growth. This tells us the business became more profitable as it expanded.


We can delve even further into Ulta's quality of earnings. While we mentioned earlier that Ulta's operating margin declined this quarter, a five-year view shows its margin has expanded 1.1 percentage points while its share count has shrunk 18%. Improving profitability and share buybacks are positive signs for shareholders as they juice EPS growth relative to revenue growth.

In Q1, Ulta reported EPS at $6.47, down from $6.88 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 3%. Over the next 12 months, Wall Street expects Ulta to grow its earnings. Analysts are projecting its EPS of $25.64 in the last year to climb by 5.3% to $27.00.

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's free cash flow came in at $68.32 million in Q1, down 65% year on year. This result represents a 2.5% margin.

Ulta Free Cash Flow Margin

Over the last eight quarters, Ulta has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining a robust cash balance. The company's free cash flow margin has been among the best in consumer retail, averaging 8.8%. However, its margin has averaged year-on-year declines of 1.5 percentage points. If this trend continues, it could signal that the business is becoming slightly more capital-intensive.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was its growth capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money it has raised (debt and equity).

Ulta's five-year average ROIC was 27.9%, placing it among the best consumer retail companies. Just as you’d like your investment dollars to generate returns, Ulta's invested capital has produced excellent profits.

The trend in its ROIC, however, is often what surprises the market and moves the stock price. Over the last few years, Ulta's ROIC has increased. The company has shown the ability to generate good returns in the past, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable business opportunities are expanding.

Balance Sheet Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly.

Ulta reported $524.6 million of cash and $1.89 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.

With $1.89 billion of EBITDA over the last 12 months, we view Ulta's 0.7x net-debt-to-EBITDA ratio as safe. We also see its $3.37 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.

Key Takeaways from Ulta's Q1 Results

We struggled to find many strong positives in these results. Although its EPS beat analysts' estimates thanks to its better-than-expected same-store sales growth (1.6% vs estimates of 1.5%), its full-year revenue and earnings guidance missed Wall Street's projections.

However, this weaker outlook was already baked into the stock price given CEO Dave Kimbell's bearish comments during the middle of the quarter, where he stated the company is seeing a slight pullback in consumer spending. Peer company elf Beauty also posted a bad quarter earlier this month, so investors anticipated Ulta's results. The company is down 1.6% after reporting and currently trades at $379.48 per share.

Is Now The Time?

Ulta may have had a tough 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 five years. On top of that, its stellar ROIC suggests it has been a well-run company historically, and its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Ulta's price-to-earnings ratio based on the next 12 months is 14.3x. 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 $506.36 per share right before these results (compared to the current share price of $379.48), implying they saw upside in buying Ulta in the short term.

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