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Ulta Beauty's (ULTA) Skincare Category Solid, SG&A Costs High
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Ulta Beauty, Inc. (ULTA - Free Report) has been benefiting from the strength in its skincare category. Omnichannel growth and focus on core priorities have also been working well for this retailer offering cosmetics, fragrance, haircare and skincare products and related services.
These upsides have been driving the Zacks Rank #3 (Hold) company amid high SG&A costs, as witnessed in the first quarter of fiscal 2023, wherein the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. On its first-quarter earnings call, management stated that while the operating landscape is likely to keep evolving, it remains confident about the resilience of the beauty category.
The Zacks Consensus Estimate for the current fiscal-year earnings per share (EPS) has risen by a penny to $25.05 over the past 30 days.
Image Source: Zacks Investment Research
Key Drivers
Ulta Beauty has been seeing market share gains in major beauty categories for a while now, with skincare standing out, thanks to consumers’ rising interest in self-care and the company’s focus on newness and innovation. The trend continued in the first quarter of fiscal 2023, wherein skincare was the company’s best-performing category. The company saw double-digit growth in both mass and prestige, mainly due to newness, engaging social media content and solid performance through 21 Days of Beauty and Spring Haul.
The company has been focused on its six strategic priorities. The company’s foremost priority is strengthening its omnichannel business and exploring the potential of physical and digital facets. Secondly, the company is undertaking various tools to enhance the 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. Sixthly, the company strives to boost organizational talent and strengthen its culture.
Ulta Beauty has been enriching its omnichannel experience through launches like Beauty to Go, options like same-day delivery (in some stores) and unique salon services across stores, among others. In fiscal 2022, the company launched its new alliance with Target and has 359 Ulta Beauty at Target shop-in-shop locations (as of the first quarter of fiscal 2023-end). Apart from this, Ulta Beauty is benefiting from its Wellness Shop launch (in the fourth quarter of fiscal 2021), a cross-category platform providing guests self-care for the mind, body and spirit across several stores and online.
SG&A Costs High
Ulta Beauty’s selling, general and administrative (SG&A) expenses have been rising year over year for a while now. In the first quarter of fiscal 2023, SG&A expenses rose 22.2% to $612.1 million. As a percentage of net sales, SG&A expenses were 23.2%, up from 21.4% reported in the year-ago quarter. The increase was due to the deleveraging of store payroll and benefits, corporate overheads and marketing expenses. The operating margin decreased from 18.7% to 16.8%.
Management now expects the operating margin to be between 14.5% and 14.8% compared with the previous view of 14.7% and 15%. The revised outlook reflects an increased gross margin deleverage view, which includes the effects of increased shrink and a more competitive and promotional landscape. The company continues to expect SG&A deleverage due to additional expenditures associated with strategic investments and the effects of overall inflation.
Wrapping Up
The abovementioned upsides are likely to keep Ulta Beauty well-placed for growth. The company expects fiscal 2023 net sales in the range of $11-$11.1 billion compared with $10.2 billion reported in fiscal 2022. Comparable sales are expected to rise 4-5%. The company expects comp growth in the first half in the high-single-digit range and moderate-to-low-single-digit growth in the second half of the year. For fiscal 2023, earnings are envisioned in the band of $24.70-$25.40 per share, suggesting a rise from the $24.01 per share reported in fiscal 2022.
Shares of ULTA have rallied 20.7% in the past year compared with the industry’s growth of 23%.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year EPS suggests a considerable increase from the year-ago reported number.
Urban Outfitters (URBN - Free Report) , which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number.
The TJX Companies (TJX - Free Report) , an off-price retailer, currently carries a Zacks Rank #2 (Buy). TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
The Zacks Consensus Estimate for The TJX Companies’ current fiscal-year earnings suggests growth of 14.5% from the year-ago reported figure.
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Ulta Beauty's (ULTA) Skincare Category Solid, SG&A Costs High
Ulta Beauty, Inc. (ULTA - Free Report) has been benefiting from the strength in its skincare category. Omnichannel growth and focus on core priorities have also been working well for this retailer offering cosmetics, fragrance, haircare and skincare products and related services.
These upsides have been driving the Zacks Rank #3 (Hold) company amid high SG&A costs, as witnessed in the first quarter of fiscal 2023, wherein the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. On its first-quarter earnings call, management stated that while the operating landscape is likely to keep evolving, it remains confident about the resilience of the beauty category.
The Zacks Consensus Estimate for the current fiscal-year earnings per share (EPS) has risen by a penny to $25.05 over the past 30 days.
Image Source: Zacks Investment Research
Key Drivers
Ulta Beauty has been seeing market share gains in major beauty categories for a while now, with skincare standing out, thanks to consumers’ rising interest in self-care and the company’s focus on newness and innovation. The trend continued in the first quarter of fiscal 2023, wherein skincare was the company’s best-performing category. The company saw double-digit growth in both mass and prestige, mainly due to newness, engaging social media content and solid performance through 21 Days of Beauty and Spring Haul.
The company has been focused on its six strategic priorities. The company’s foremost priority is strengthening its omnichannel business and exploring the potential of physical and digital facets. Secondly, the company is undertaking various tools to enhance the 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. Sixthly, the company strives to boost organizational talent and strengthen its culture.
Ulta Beauty has been enriching its omnichannel experience through launches like Beauty to Go, options like same-day delivery (in some stores) and unique salon services across stores, among others. In fiscal 2022, the company launched its new alliance with Target and has 359 Ulta Beauty at Target shop-in-shop locations (as of the first quarter of fiscal 2023-end). Apart from this, Ulta Beauty is benefiting from its Wellness Shop launch (in the fourth quarter of fiscal 2021), a cross-category platform providing guests self-care for the mind, body and spirit across several stores and online.
SG&A Costs High
Ulta Beauty’s selling, general and administrative (SG&A) expenses have been rising year over year for a while now. In the first quarter of fiscal 2023, SG&A expenses rose 22.2% to $612.1 million. As a percentage of net sales, SG&A expenses were 23.2%, up from 21.4% reported in the year-ago quarter. The increase was due to the deleveraging of store payroll and benefits, corporate overheads and marketing expenses. The operating margin decreased from 18.7% to 16.8%.
Management now expects the operating margin to be between 14.5% and 14.8% compared with the previous view of 14.7% and 15%. The revised outlook reflects an increased gross margin deleverage view, which includes the effects of increased shrink and a more competitive and promotional landscape. The company continues to expect SG&A deleverage due to additional expenditures associated with strategic investments and the effects of overall inflation.
Wrapping Up
The abovementioned upsides are likely to keep Ulta Beauty well-placed for growth. The company expects fiscal 2023 net sales in the range of $11-$11.1 billion compared with $10.2 billion reported in fiscal 2022. Comparable sales are expected to rise 4-5%. The company expects comp growth in the first half in the high-single-digit range and moderate-to-low-single-digit growth in the second half of the year. For fiscal 2023, earnings are envisioned in the band of $24.70-$25.40 per share, suggesting a rise from the $24.01 per share reported in fiscal 2022.
Shares of ULTA have rallied 20.7% in the past year compared with the industry’s growth of 23%.
Some Promising Stocks
Abercrombie & Fitch (ANF - Free Report) , which operates as a specialty retailer, currently sports a Zacks Rank #1 (Strong Buy). ANF has a trailing four-quarter earnings surprise of 480.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year EPS suggests a considerable increase from the year-ago reported number.
Urban Outfitters (URBN - Free Report) , which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number.
The TJX Companies (TJX - Free Report) , an off-price retailer, currently carries a Zacks Rank #2 (Buy). TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
The Zacks Consensus Estimate for The TJX Companies’ current fiscal-year earnings suggests growth of 14.5% from the year-ago reported figure.