Ulta (ULTA)

Beauty, cosmetics, and personal care retailer Ulta Beauty (NASDAQ:ULTA) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 9.3% year on year to $2.79 billion. The company’s full-year revenue guidance of $12.05 billion at the midpoint came in 2.8% above analysts’ estimates. Its GAAP profit of $5.78 per share was 14.6% 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.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $11.65 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 8.6% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, Ulta reported year-on-year revenue growth of 9.3%, and its $2.79 billion of revenue exceeded Wall Street’s estimates by 4.2%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, a deceleration versus the last six years. We still think its growth trajectory is satisfactory given its scale and indicates the market is baking in success for its products.

Number of Stores

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

Ulta sported 1,473 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 3.5% annual growth, among the fastest in the consumer retail sector. This gives it a chance to become a large, scaled business over time.

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 2.4% 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 6.7% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

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 averaged an excellent 42.7% gross margin over the last two years. That means for every $100 in revenue, only $57.33 went towards paying for inventory, transportation, and distribution.

Ulta produced a 39.2% gross profit margin in Q2, in line with the same quarter last year and exceeding analysts’ estimates by 2.8%. 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 as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Ulta’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 13.7% over the last two years. This profitability was top-notch for a consumer retail business, showing it’s an well-run company with an efficient cost structure. 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 12.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Ulta’s EPS grew at a decent 14.1% compounded annual growth rate over the last six years, higher than its 8.6% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q2, Ulta reported EPS of $5.78, up from $5.30 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Ulta’s full-year EPS of $26.08 to shrink by 5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 8.5% over the last two years.

Ulta broke even from a free cash flow perspective in Q2. The company’s cash profitability regressed as it was 3.4 percentage points lower than in the same quarter last year, but we wouldn’t read too much into it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to quarter-to-quarter swings. Long-term trends trump fluctuations.

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 32.1%, 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 $242.7 million of cash and $2.29 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 $1.87 billion of EBITDA over the last 12 months, we view Ulta’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $5.80 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’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 7.9% to $571.93 immediately after reporting.

Updated: November 12, 2025 at 9:39 PM EST

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.

Ulta possesses a number of positive attributes. Although its revenue growth was mediocre over the last six years and analysts expect growth to slow over the next 12 months, its new store openings have increased its brand equity. And while its projected EPS for the next year is lacking, its stellar ROIC suggests it has been a well-run company historically.

Ulta’s P/E ratio based on the next 12 months is 20.4x. When scanning the consumer retail space, Ulta trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $575.78 on the company (compared to the current share price of $535.53), implying they see 7.5% upside in buying Ulta in the short term.