Ulta Beauty is preparing to reach new highs

Ulta Beauty Inc. NASDAQ:ULTA has become the largest beauty retailer in the United States. With nearly 1,400 stores, this consumer discretionary industry leader sells everything from cosmetics, fragrances and bath products to hair and skin care.

Its products range from mass market to high-end premium brands such as Estée Lauder Companies Inc. NYSE:EL, Coty Inc. NYSE:COTY AND elf beauty inc. NYSE: ELF, along with exclusive offers. While the majority of its customers are women, it has developed a men’s section that includes skin care, hair care, body care and cologne products.

The average Ulta Beaty location is approximately 10,000 square feet, with nearly 950 square feet dedicated to the salon. The company always keeps up with the latest beauty and fashion trends and boasts a loyalty program that has grown to more than 42.2 million members since its launch in 2014.

Share the wealth

As the nation’s largest beauty retailer, Ulta has the scale to make or break new beauty brands. The company is engaged in an annual startup accelerator program for new companies looking to grow their beauty products business. Its Magnify, Uplift, Support and Empower (MUSE) Accelerator is a year-long program that takes eight Black, Indigenous and People of Color (BIPOC) beauty brands through a 10-week journey to prepare for retail distribution.

The Inclusion Program provides select businesses with a $50,000 grant and mentorship from BIPOC beauty founders and Ulta merchandising partners to help accelerate business development. The program began in 2021 and has seen success stories, including Pound Cake Cosmetics, which has secured distribution in over 1,200 Ulta Beauty, Hyper Skin and KNC Beauty stores. Ulta doesn’t disclose how many companies have applied for the final group, but estimates range from hundreds to thousands.

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Going forward

Ulta Beauty reported fiscal third-quarter 2023 EPS of $5.07, beating consensus analyst estimates by 11 cents. Gross profit grew 3% year-over-year (YoY) to $992.1 million compared to $962.8 billion in the same period a year ago.

However, gross profit fell to 39.9% from 41.2% in the same period a year ago, due to higher shrinkage, higher supply chain costs and margin compression on merchandise, partially offset by strong growth in other revenues. Net interest income rose to $2.5 million due to higher average interest rates on cash.

Revenue grew 6.4% year over year to $2.49 billion, beating $2.47 billion. Comparable same-store sales increased 4.5% year-over-year, compared to 14.6% year-over-year growth in the year-ago period. Similar sales apply to stores open for at least 14 months. Ticket sales for the quarter were driven by a 5.9% increase in transactions minus a 1.4% decrease in average ticket sales. Ulta ended the quarter with $121.8 million in cash and cash equivalents.

Increasing inventories due to increasing demand

Merchandise inventories grew 9.8% year-over-year to $2.3 billion, up from $2.1 billion in the same period a year earlier. However, this increase was due to support of expected demand from 31 net new stores, increased product costs, new brand launches and a new fulfillment center in South Carolina.

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Raising the low range of his drive

Ulta Beauty raised the lower range of its full-year fiscal 2023 EPS forecast from $25.20 billion to $25.60 billion, up from $25.10 billion to $25.60 billion from analyst estimates at consensus of $25.34 billion.

It raised its full-year 2023 revenue forecast range to $11.10 billion from $11.05 billion to $11.15 billion from consensus estimates of $11.16 billion. dollars. It grew comparable sales in the range of 5% to 5.5%, compared to the expected range of 4.5% to 5.5%.

Insights from the CEO

Ulta Beauty CEO Dave Kimball looked at product segments. Makeup was flat, posting mid-single-digit growth. The perfume segment recorded low double-digit growth. Haircare saw declines in the low single-digit range.

CEO Kimball said skincare is “once again” the fastest-growing category, seeing double-digit growth in mass and prestige categories. She noted, “Beauty enthusiasts have maintained their skincare routines while experimenting with new regimens. Consumer interest in moisturizers, serums and cleansers is driving growth, and brands leading these trends like Drunk Elephant, Good Molecules and COSRX contributed to our excellent results.”

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Bullish pennant daily breakout towards bull flag

The daily candlestick chart for ULTA illustrates a bullish pennant breakout followed by a bullish flag pattern.

Its Q3 2023 earnings formed a gap of $465, peaking at $505.59. ULTA retested support to fill the gap at $465 on January 5, before forming a pennant of higher highs and lower lows. The daily relative strength index (RSI) bounce through the 55 band was the fuel that led ULTA to break out of the $484.28 upper descending trendline on Jan. 25, taking the stock to a high of $511 ,58 by January 30th.

A bullish flag of lower highs and lower lows followed, awaiting a new breakout through the upper descending trend line. The 50-period daily moving average (MA) support rose to $475.47, overlapping the pennant’s ascending lower trendline. The pullback support levels are at $475.09, $465, $439.87, and $427.80.

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