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Ulta Beauty (ULTA) View Up on Q3 Earnings Beat, Stock Gains

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Shares of Ulta Beauty, Inc. (ULTA - Free Report) moved up 5.2% in the after-market trading session on Dec 2, as the company posted splendid third-quarter fiscal 2021 results. The company raised its fiscal 2021 guidance. During the quarter, the top and the bottom line advanced year over year and surpassed the Zacks Consensus Estimate.

Results were backed by strength in the beauty category along with benefits from the company’s differentiated model. During the quarter, Ulta Beauty’s major categories posted robust double-digit year-over-year comparable sales or comps growth. The uptick was driven by the cycling of last year's pandemic-induced disruption, product newness along with solid performance from strategic promotional events.

Despite the dynamic operating landscape and uncertainties amid the pandemic, Ulta Beauty pulled up the sales, comps, operating margin and earnings guidance for fiscal 2021.

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


Quarterly Numbers

Ulta Beauty posted earnings per share (EPS) of $3.94, which beat the Zacks Consensus Estimate of $2.51. In third-quarter fiscal 2020, adjusted EPS was $1.64.

Net sales of this beauty products retailer surged 28.6% year over year to $1,995.8 million and beat the Zacks Consensus Estimate of $1,900.2 million. The uptick can be attributed to increased consumer confidence and the relaxation of pandemic-related curbs.

Comps rose 25.8% against a decline of 8.9% recorded in the prior-year quarter. The metric was driven by 16.8% improvement in transactions along with a 7.7% increase in average ticket. Compared with third-quarter fiscal 2019 levels, comparable sales jumped 14.3%. Comps take into account stores that were open for at least 14 months, including stores temporarily closed due to the pandemic and e-commerce sales.

E-commerce sales penetration in the quarter was almost 500 basis points less, as the company cycled year-ago period’s solid online growth. Buy online, pick up in-store or BOPIS orders rose 28% year over year, forming 20% of e-commerce sales in the quarter compared with 16% during the prior year.

Gross profit advanced from $545.5 million to $789.5 million. Gross margin rose from 35.1% to 39.6%, mainly led by favorable channel mix shifts, better merchandise margins and leverage of fixed costs as well as salon costs.

SG&A expenses escalated from $416.4 million to $503.4 million in the third quarter of fiscal 2021. SG&A expenses (as a percentage of net sales) came in at 25.2%, down from 26.8% reported in the year-ago quarter. This was caused by leveraging of corporate overhead, store expenses and store payroll as well as gains from increased sales. These were somewhat offset by increased marketing expenses.

Operating income came in at $284.2 million and the operating margin was 14.2%. In the third quarter of fiscal 2020, the company had posted an operating income of $101.3 million, with the operating margin coming in at 6.5%. Solid top-line performance and the ongoing cost-optimization efforts boosted the operating margin performance.

Other Updates

Ulta Beauty ended the third quarter with cash and cash equivalents of $605.1 million. Net merchandise inventories came in at $1.92 billion. Stockholders’ equity at the end of the quarter stood at $1,986.8 million. Net cash provided by operating activities was $414.9 million in the 39 weeks ended Oct 30, 2021.

The company repurchased shares worth $126.4 million during the third quarter and worth $762.2 million in the nine months of fiscal 2021. As of Oct 30, 2021, the company had $759.8 million worth of shares remaining under its $1.6-billion buyback program announced in March 2020. The company expects share buybacks of nearly $850 million in fiscal 2021. For fiscal 2021, capital expenditures are expected in the bracket of $200-$225 million.

During the reported quarter, the company introduced seven new stores along with relocating two, remodeling three and closing one. Ulta Beauty ended the quarter with 1,302 stores. For fiscal 2021, the company expects 44 net new stores along with 17 store remodeling and relocation projects.

Zacks Investment ResearchImage Source: Zacks Investment Research


The company is impressed with its year-to-date performance as well as solid trends experienced so far in the fiscal fourth quarter. Management raised its fiscal 2021 view. It now expects net sales of $8.5-$8.6 billion, up from the $8.1-$8.3 billion expected before. The Zacks Consensus Estimate for fiscal 2021 top-line is currently pegged at $8.38 billion. Comps growth is now expected in the range of 36-37% compared with the prior band of 30-32%.

Management expects the operating margin to be between 14.3-14.5%, up from nearly 13% projected before. Growth in operating margin is likely to be driven by an expansion in gross margin, which, in turn, is expected to benefit from fixed cost leverage, better merchandise margin, lower salon costs and reduced headwinds related to channel shift.

Earnings are now envisioned in the range of $16.7-$17.1 per share compared with $14.5-$14.7 forecast earlier. The Zacks Consensus Estimate is currently pegged at $15.12 per share.

The Zacks Rank #3 (Hold) stock has gained 4.9% in the past three months against the industry’s decline of 2.5%.

3 More Stocks Hogging the Limelight

Some other top-ranked stocks in the Retail - Wholesale sector are Boot Barn Holdings (BOOT - Free Report) , Tractor Supply Company (TSCO - Free Report) and Target (TGT - Free Report) .

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 42.8% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.6% and 188%, respectively, from the year-ago period’s levels. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average. 

Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have increased 14.5% in the past three months. 

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period’s levels. TSCO has an expected EPS growth rate of 9.6% for three-five years. 

Target, a renowned omnichannel retailer, presently carries a Zacks Rank #2 (Buy). TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The stock has inched up 0.5% in the past three months.

The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 14.3% and 39.6%, respectively, from the corresponding year-ago period’s levels. TGT has an expected EPS growth rate of 14.4% for three-five years.