Is Ulta Beauty a Buy After Q3 Results?


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Sthe shareholders of Ulta Beauty (NASDAQ: ULTA) have seen the outlook for their business soar over the past nine months. The retailer now expects more than $ 1 billion in higher revenue in 2021 than it originally anticipated.

In this “Beat & Raise” video, broadcast on December 3, Fool contributors Jason Hall and Demitri Kalogeropoulos discuss the company’s bright growth prospects given the rebound taking place today in the beauty, hair and skin care niches.

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Demitri Kalogeropoulos: Ulta Beauty, ULTA stock symbol, this is a retailer, one of the major US retailers in this space, in beauty products and services that have secured salon services. The main result of this earnings report is fantastic news. The company improved its outlook for the third quarter in a row, and it’s really broad. Much higher sales expectations, much higher profit margins, very good momentum. Sales for the period up to the end of October were $ 2 billion, up 29% year over year. This is compared to 2019, so just give yourself a better – sort of smoothing out the volatility of closings in 2020. It was almost 10% more than most people on Wall Street expected. .

Earnings per share roughly tripled 200% to $ 3.94 per share, and that’s again, in part thanks to the powerful combination of very rapidly growing sales and profit margins. The sales trends are really strong, looking below that sales figure. We had 8% more average spend by buyers and 17% more traffic, it’s just fantastic. It’s about as good as you want to see as a retailer. Traffic transactions are really high as there is a nice recovery in the makeup and skin care and hair care markets. But you also get higher spend, which suggests that consumers just feel like they’re in a really good spending space, and they’re buying more high-end products, and there’s less promotions and everything. This is good news for the retailer. The profit margin was 14% of sales, well above the 13% they were hoping to achieve this year, and well above around 10% is what Ulta was saying before the pandemic, so really positive news the low. As for the outlook, the company has just increased its outlook for the third time in a row, as I said. Now they think they could reach $ 8.6 billion in sales in 2021, and three months ago that number was 8.3, three months earlier it was 7.6.

Jason Hall: I don’t know about you, Demitri, [laughs] but I could use an additional $ 300 million.

Demitri Kalogeropoulos: Yes. Exactly. Then if you just look from their initial outlook for 2021 to now, they’re looking at over a million.

Jason Hall: $ 1 million.

Demitri Kalogeropoulos: Additional, yeah.

Jason Hall: Yeah.

Demitri Kalogeropoulos: Fantastic. Now they think the operating margin will drop to around 15% of sales after increasing it to 14% in the last quarter and 13% in the previous quarter, so much higher expectations there. All of this, there are no real warning signs that I can see in this appeal. The question now: will management perhaps get a little more aggressive with its expansion strategy? They have slowed down their new store launches in recent years, with sales growth slowing a bit before the pandemic and because of the pandemic. But now they’ve partnered up with Target and are doing it that way. But now, with these numbers looking so good, it’s possible that Ulta has a chance of potentially reverting to more aggressive store launches in 2022.

Jason Hall: Yeah. It’s definitely one of those companies that it’s clear that it’s the retail business that people are really interested in: health and beauty products in particular, the fact that they have salons in a lot of their locations, which generate traffic. People stay, they buy, they might find products they like, they keep coming back. I know they have a pretty popular loyalty program as well, which seems to make it even stickier.

Demitri Kalogeropoulos: They do. One of the big differentiators is that they call it the ‘play and experience’ aspect of their buying model, which is great, makes a lot of sense in this niche because you can try out different products and see if you get them. love. The question is: how will this play out in the new post-pandemic environment where everyone is buying more online and maybe not as much in person? But I think they have shown through the pandemic that their e-commerce, thanks to this loyalty program, is great, and they are doing well there.

I guess it’s a little surprising that the stock fell a bit last month even though this earnings report was so good. It’s part of that, since we were just talking about volatility, it’s difficult. There are a lot of growth stocks that have been hit particularly hard, and I think Ulta is one of them.

Demitri Kalogeropoulos has no position in the mentioned stocks. Jason Hall has no position in the stocks mentioned. The Motley Fool owns and recommends Ulta Beauty. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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