Ulta (ULTA)

Beauty, cosmetics, and personal care retailer Ulta Beauty (NASDAQ:ULTA) announced better-than-expected revenue in Q1 CY2025, with sales up 4.5% year on year to $2.85 billion. The company expects the full year’s revenue to be around $11.6 billion, close to analysts’ estimates. Its GAAP profit of $6.70 per share was 15.5% above analysts’ consensus estimates.

Company Overview

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.

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.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $11.42 billion in revenue over the past 12 months, Ulta is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Ulta’s sales grew at a mediocre 8.7% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, Ulta reported modest year-on-year revenue growth of 4.5% but beat Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us and indicates its products will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Ulta sported 1,451 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 3.3% annual growth. This was faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Ulta’s demand rose over the last two years and slightly outpaced the industry. On average, the company’s same-store sales have grown by 2.6% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.

In the latest quarter, Ulta’s same-store sales rose 2.9% year on year. This performance was more or less in line with its historical levels.

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 averaged an excellent 42.7% gross margin over the last two years. That means Ulta only paid its suppliers $57.27 for every $100 in revenue.

Ulta produced a 39.1% gross profit margin in Q1, in line with the same quarter last year and exceeding analysts’ estimates by 0.7%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Ulta has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer retail sector, boasting an average operating margin of 14.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Ulta’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Ulta generated an operating margin profit margin of 14.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Ulta has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 9.3% over the last two years.

Taking a step back, we can see that Ulta’s margin expanded by 2.4 percentage points over the last year. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Ulta’s free cash flow clocked in at $299.1 million in Q1, equivalent to a 10.5% margin. This result was good as its margin was 8 percentage points higher than in the same quarter last year, building on its favorable historical trend.

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

Ulta’s five-year average ROIC was 31.2%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Ulta reported $454.6 million of cash and $1.98 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 $1.85 billion of EBITDA over the last 12 months, we view Ulta’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $4.65 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Ulta blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad its revenue outperformed and it lifted its full-year revenue guidance, especially given the tariff uncertainty. Overall, we think this was a solid quarter with some key metrics above expectations. The stock traded up 7.9% to $455.40 immediately following the results.

Updated: June 23, 2025 at 10:27 PM EDT

Before investing in or passing on Ulta, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

In our opinion, Ulta is a solid company. Although its revenue growth was mediocre over the last six years and analysts expect growth to slow over the next 12 months, its stellar ROIC suggests it has been a well-run company historically. And while its projected EPS for the next year is lacking, its expanding store base shows it’s playing offense to grow its brand.

Ulta’s P/E ratio based on the next 12 months is 20x. When scanning the consumer retail space, Ulta trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $476.61 on the company (compared to the current share price of $471.59).