Ulta Beauty, Inc. (ULTA Quick QuoteULTA - Free Report) posted strong fourth-quarter fiscal 2023 results, wherein both top and bottom lines improved year over year and beat the Zacks Consensus Estimate.

Results were backed by the success of the company’s holiday season strategies and carefully curated product selection, which resonated well with customers. These factors led to increased traffic, greater brand recognition, and robust member growth. Moving into 2024, the company is well-positioned for continued revenue and earnings per share (EPS) growth. While the macroeconomic landscape remains dynamic in the near term, management expressed optimism about the beauty industry's resilience, highlighting growth opportunities for the company.

Ulta Beauty further highlighted the potential for global expansion as a long-term strategic opportunity. After careful evaluation of different operating models, partnerships, and geographical considerations, the company has unveiled the creation of a joint venture with Axo, in a bid to launch and manage Ulta Beauty in Mexico, scheduled for 2025. Axo boasts extensive expertise in managing global brands.

Quarterly Numbers

Ulta Beauty reported an EPS of $8.08 in the quarter, which beat the Zacks Consensus Estimate of $7.49. The bottom line surged 21% from the $6.68 in the year-ago period.

Net sales of this beauty product retailer advanced 10.2% year over year to $3,554.3 million and beat the Zacks Consensus Estimate of $3,519 million. The uptick can be attributed to higher comparable sales, solid new store performance, increase in other revenues and benefit from an additional week.

Comparable sales (sales for stores open for at least 14 months and e-commerce sales) jumped 2.5% compared with our estimate of 1.4% growth. Comparable sales growth was driven by a 4.5% improvement in transactions, partly offset by a 1.9% drop in the average ticket.

The gross profit advanced 10.6% to $1,340.6 million. The gross profit, as a percentage of net sales, was 37.7%, up 10 basis points year over year. Higher other revenue, lower supply-chain costs and reduced shipping rates fueled the upside. Our model suggested a gross margin expansion of 40 bps to 38%.

SG&A expenses rose 7.6% to $820.4 million. As a percentage of net sales, SG&A expenses were 23.1%, down from the 23.6% reported in the year-ago quarter. Increased corporate overheads related to strategic investments were more than offset by leverage of incentive compensations, along with lower marketing expenses as well as store payroll and benefits.

The operating income ascended 15.5% to $517.1 million. The operating margin expanded 60 bps to 14.5%.

Other Updates

Ulta Beauty ended the quarter with cash and cash equivalents of $766.6 million. Net merchandise inventories were $1.7 billion at the end of the fourth quarter of fiscal 2023. Stockholders’ equity at the end of the quarter stood at $2,279.3 million. Net cash provided by operating activities was $1,476.3 million for the 53 weeks ended Feb 3, 2024.

At the end of the fiscal fourth quarter, Ulta Beauty did not have any borrowings outstanding under its revolving credit facility.

The company repurchased 352,000 shares for $159.5 million in the fiscal fourth quarter. In fiscal 2023, ULTA repurchased 2.2 million shares for $1 billion. As of Feb 3, 2024, Ulta Beauty had shares worth $99.9 million left under its $2 billion buyback program announced in March 2022.

On Mar 12, management unveiled a new repurchase plan of $2 billion, which will replace the abovementioned March 2022 authorization. Management expects to buy back shares worth $1 billion in fiscal 2024.

For fiscal 2024, the capital expenditure is expected to be in the band of $415-$490 million.

In the reported quarter, Ulta Beauty introduced 13 new stores, remodeled two and relocated two. Ulta Beauty ended the fiscal fourth quarter with 1,385 stores totaling 14.5 million square feet.

For fiscal 2024, ULTA expects 60-65 net new stores, along with 40-45 store remodeling and relocation projects.

Guidance

Ulta Beauty expects fiscal 2024 net sales in the range of $11.7-$11.8 billion. The company reported net sales of $11.2 billion in fiscal 2023.

Comparable sales are expected to rise 4-5%. Management expects an operating margin between 14% and 14.3%.

For fiscal 2024, earnings are envisioned to be in the band of $26.20-$27 per share, suggesting a rise from the $26.03 per share reported in fiscal 2023.

This Zacks Rank #3 (Hold) stock has risen 36.7% in the past six months compared with the industry’s growth of 28.8%.

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