Is the stock a buy right now, given its solid prospects?  

Ulta is up 3.34% in the past week, after the Illinois-based company reported earnings of $5.34 per share on revenue of $2.34 billion, beating analysts’ views on both. 

The company also boosted its full-year outlook. It now expects net sales in a range between $9.95 billion and $10 billion, up from a range of  $9.65 billion to $9.75 billion forecast earlier. earlier. 

Earnings are expected to come in somewhere between $22.60 and $22.90 per share, up from a range of $20.70 and $21.20 per share.

When it comes to same-store comps, a common retail metric that refers to year-over-year store sales comparisons, Ulta expects an increase in a range between 12.6% and 13.2%. That’s up from previous guidance calling for growth between 9.5% and 10.5%. 

Growth Due To Newness 

In the earnings conference call, CEO Dave Kimbell said higher prices contributed to the strong results, but he attributed most of the gain to “growth from our core assortment and newness. Historically, sales of new products have averaged 20% to 30% of our sales, and the overall mix of newness this year has been in line with our historical experience.”

He added that the categories of skincare, fragrance, and bath, hair care, and makeup all delivered double-digit comp growth against the year-earlier quarter. Skincare was the fastest-growing category, with science-backed and dermatologist-recommended products among strong sellers. 

The business is continuing to evolve to include younger and more diverse brand founders. The wellness category is also growing, part of an initiative to appeal to Gen Z consumers.

In addition to its in-store sales, the company’s other revenue sources include salons inside its stores and online sales. 

Despite investors’ cheer about the company’s report and its optimism about the current quarter, potential investors should be cautious about some details.

For example, revenue growth has been in the strong double digits in the past seven quarters. However, growth rates have slowed from 65% in the quarter that ended in April 2021 to 17% in the two most recent quarters. 

Earnings growth, too, has slowed. Here, year-over-year net income was increasing at triple-digit rates in mid-2021. Those levels are now down to the double digits, with growth coming in at 2, but steadily decelerated from 519% in the quarter ended in July 2021 to 26% and 35% in the two most recent quarters. 

In the category of beauty retailers, Ulta leads other companies, including Sally Beauty (NYSE: SBH) and hair-salon chain Regis (NYSE: RGS), which are tracked in the same industry group. 

Analysts have a “moderate buy” rating on Ulta with a price target of $512.60, representing a 10.11% upside.

Since the earnings report, 11 analysts boosted their price targets on the stock, according to MarketBeat analyst data. 

Optimism About Q4

In the earnings call, Kimbell elaborated upon the good signs the company is seeing as fourth-quarter shopping gets underway. Many retailers see their biggest sales during the December quarter. 

“The holiday season is in full flow, and our teams are executing well,” Kimbell said. “While predicting holiday shopping patterns this year is challenging, I am optimistic about the opportunity for Ulta Beauty this holiday season.”

He added, “Even as consumers continue to navigate economic headwinds, we believe the beauty category will remain resilient, and we are confident that our differentiated model and growth strategy, combined with our outstanding associates, will continue to position Ulta Beauty as the preferred beauty destination.” 

Ulta rallied to a high of $477.92 on Friday and is down slightly since then as the broader market pulled back on Monday and Tuesday. The stock found support at its 10-day moving average Tuesday before ending the season at $465.58, down $6.94 or $1.47%.

With a market capitalization of $23.85 billion, Ulta easily qualifies as a large cap and is a component of the S&P 500. The stock has outperformed its index by a wide margin in 2022, with a year-to-date return of 14.59% vs. the index’s 16.24% decline.

Ulta’s support at its 10-day average bodes well and may mean the stock is a viable watchlist candidate. However, as with any potential purchase, always understand how it may fit into your existing portfolio, and how it aligns with your risk tolerance, time horizon, and financial goals.