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Ulta Beauty (ULTA) Shines on Solid Skincare & E-Commerce Business

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Strength in the skincare category and rising e-commerce sales have kept Ulta Beauty, Inc. (ULTA - Free Report) on a strong footing. Markedly, such upsides fueled first-quarter fiscal 2021 results, wherein the top and bottom lines grew year over year and crushed the Zacks Consensus Estimate. Robust sales and cost-containment efforts drove the bottom line in the first quarter, while sales gained on government stimulus, better consumer confidence and relaxation of pandemic-related curbs. Also, the desire for newness has been an upside. Certainly, this beauty products retailer’s focus on its six key strategies has been yielding results.

Encouragingly, management raised its fiscal view. Well, the Zacks Consensus Estimate for fiscal 2021 has increased 25.2% to $12.02 per share over the past 30 days. Also, the Zacks Rank #1 (Strong Buy) stock has rallied 24.9% in the past six months, easily crushing the industry’s growth of 9.1%. Notably, this Bolingbrook, IL-based company also comfortably outpaced the S&P 500’s rise of 16.9%. Meanwhile, the Zacks Retail-Wholesale sector declined 2.5% in the same time frame. Let’s take a closer look.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

Impressive Q1 Results & Outlook

Net sales surged 65.2% year over year to $1,938.5 million and easily beat the Zacks Consensus Estimate of $1,673 million in the first quarter. The rise in sales can be attributable to positive impacts in the United States from government stimulus payments, better consumer confidence and relaxation of pandemic-related curbs. Also, the desire for newness is driving consumer spending in the beauty space. Comparable sales or comps soared 65.9%. This solid growth was broad-based, with better-than-expected performance across categories, regions and channels, especially stores (with consumers becoming extremely comfortable with in-store shopping).

Ulta Beauty remains well placed for recovery in the beauty space, thanks to its differentiated model and endeavors to build important guest connections. Impressively, the company raised its sales, comps, operating margin and earnings guidance for fiscal 2021. Management now expects net sales of $7.7-$7.8 billion, up from $7.2-$7.3 billion expected before. Comps growth is now expected in the range of 23-25% compared with the prior band of 15-17%. Further, management expects operating margin to be around 11% now, up from 9% projected before. Growth in operating margin is likely to be driven by an expansion in gross margin. Earnings are now envisioned in the range of $11.5-$11.95 per share, in comparison with $8.85-$9.30 forecasted earlier.

Zacks Investment ResearchImage Source: Zacks Investment Research

Skincare Category a Major Driver

Ulta Beauty has been seeing market share gains in major beauty categories for a while now, with skincare standing out. The trend continued in the first quarter of fiscal 2021, wherein skincare saw sturdy sales growth. As a percentage of sales, skincare expanded 200 basis points to 19% in the first quarter. Consumers have been showing rising interest in new brands like Keys Soulcare, LOLI Beauty, and Urban Skin Pro, as well as new products under Tula, Pacifica, and Central Bay. Apart from these, the company also saw strength in the fragrance and hair care categories, with the latter gaining on the DIY trends, hair color, color care and hair styling tools. Consumers’ increased focus on skincare and hair amid higher at-home grooming is likely to keep aiding these categories.

Omnichannel Development Aids

Ulta Beauty is known for its strategy of striking the right balance between online and physical stores. E-commerce delivered a solid performance in the first quarter, rising in the mid-teens range on the back of robust traffic and increased average order. Markedly, buy online, pick up in-store or BOPIS penetration elevated to roughly 16% of total e-commerce sales in the first quarter, up from 4% in the same period last year. Apart from these, the company’s stores and ship-to-home channels drove e-commerce sales. Additionally, the company’s initiatives to boost online promotions and customer engagement have been supporting online sales growth. With consumers growing enthusiasm toward online sales, management remains on track with expanding capacity at fulfillment centers, expansion of ship from store capabilities as well as curbside pickups. The company is also benefiting from its mobile app and virtual try-on capabilities.

Focus on 6 Key Priorities

The company has been focused on its six strategic priorities. The company’s foremost priority is to strengthen its omnichannel business and explore the potential of both physical and digital facets. The pandemic has, in fact, sped up this process for the company, given consumers’ increased online engagement. Next, the company is undertaking various tools to enhance experience of guests, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Thirdly, the company concentrates on offering customers a curated and exclusive range of beauty products through innovation. Fourthly, the company is focused on deepening customer engagement by boosting rewards and loyalty programs. Fifthly, management is committed to optimizing its cost structure. Apart from these, the company strives to boost organizational talent and strengthen its culture.

All said, we expect Ulta Beauty to keep its splendid show going, especially with the relaxation of pandemic-led curbs and the company’s incessant efforts to drive growth.

3 Other Solid Retail Stocks

Hibbett Sports (HIBB - Free Report) has a long-term earnings growth rate of 8.5% and currently, a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK’S Sporting (DKS - Free Report) boasts a long-term earnings growth rate of 7.1% and currently, a Zacks Rank #1.

Sally Beauty (SBH - Free Report) , also a Zacks Rank #1 stock, has a trailing four-quarter average earnings surprise of 37.8%.

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