Ulta Beauty, Inc. (NASDAQ: $ULTA) is a leading beauty retailer offering cosmetics, haircare products, skincare lines, fragrances, and salon services. With over 1,300 stores across the US, Ulta Beauty caters to mass and prestige market segments with a wide array of popular brands and knowledgeable beauty associates. It provides an engaging shopping experience and continues driving growth and customer satisfaction through its loyalty program and omnichannel capabilities.
On Friday, March 15, 2024, Ulta Beauty reported stellar fourth quarter and fiscal year 2023 financial results, beating analysts’ estimates.
Dave Kimbell, the company’s CEO, expressed his satisfaction with the results, stating, “We closed out a strong 2023 with better-than-expected fourth-quarter financial performance.”
Ulta Beauty Q4 Highlights
Ulta Beauty’s net sales for the fourth quarter surged by an impressive 10.2% to reach $3.6 billion, up from $3.2 billion in the same period last year. This remarkable growth was primarily driven by increased comparable sales, robust performance of new stores, and strong growth in other revenue streams, coupled with an additional week’s sales. Net sales during the 53rd week alone amounted to an impressive $181.9 million.
Comparable sales rose by a solid 2.5%, compared to the 15.6% increase recorded the previous year, driven by a 4.5% increase in transactions, partially countered by a 1.9% decline in average ticket size.
Gross profit also witnessed a substantial 10.6% increase, reaching $1.3 billion compared to $1.2 billion in the prior year’s quarter. The gross margin improved to 37.7% from 37.6%, primarily due to strong growth in other revenue streams, lower shipping rates, and effective leverage of supply chain expenses, partially offset by lower merchandise margins.
Ulta Beauty’s SG&A expenses increased by 7.6% to $820.4 million, compared to $762.7 million in the previous year’s quarter. The SG&A margin decreased to 23.1% from 23.6%, while operating income soared by 15.5% to $517.1 million, for an operating margin of 14.5%, compared to a 13.9% operating margin in the prior year’s quarter.
The company’s net income rose 15.7% to $394.4 million from $340.8 million the prior year. Diluted earnings per share jumped 21% to $8.08, including a $0.46 boost from an extra week of sales, compared to $6.68 previously, which had benefited $0.02 from stock compensation tax accounting.
Strong Fiscal 2023 Performance
For the full fiscal year 2023, Ulta Beauty reported equally impressive results, with net sales increasing by 9.8% to $11.2 billion, up from $10.2 billion in the previous fiscal year. Comparable sales for the fiscal year rose by 5.7%, surpassing the 15.6% increase recorded in the prior year, fueled by a 7.4% rise in transactions, partially offset by a 1.5% decline in average ticket size.
Gross profit increased 8.3% to $4.4 billion, compared to $4.0 billion in the previous fiscal year. However, the gross margin decreased slightly to 39.1% from 39.6%, primarily due to lower merchandise margins and higher inventory shrink, partially offset by strong growth in other revenue streams and effective leverage of store fixed costs.
SG&A expenses increased by 12.5% to $2.7 billion, while operating income for the fiscal year increased by 2.4% to $1.7 billion, compared to $1.6 billion in the previous fiscal year. Net income increased 3.9% to $1.3 billion from $1.2 billion in 2022, and diluted EPS rose 8.4% to $26.03.
Strong Balance Sheet and Shareholder Returns
Ulta Beauty’s financial position remained robust, with cash and cash equivalents totaling $766.6 million at the end of the fourth quarter. The company also announced a new $2.0 billion share repurchase program, replacing the previous authorization, demonstrating its commitment to returning value to shareholders.
Dave Kimbell expressed confidence in the company’s prospects, stating, “We enter 2024 well-positioned to drive strong top and bottom-line growth, build on our foundational capabilities, and unlock further advantages of our differentiated model.”
International Expansion and Store Growth
In an exciting development, Ulta Beauty announced its international debut in Mexico, scheduled for 2025. The company has partnered with Axo, a global brands operator, to launch and operate Ulta Beauty stores in Mexico.
Dave Kimbell stated, “International expansion represents an incremental, long-term opportunity for Ulta Beauty to extend our reach and leverage our differentiated value proposition.”
During fiscal 2023, Ulta Beauty opened 33 new stores, relocated seven, remodeled 18, and closed three. At the end of the fourth quarter of fiscal 2023, the company operated 1,385 stores spanning 14.5 million square feet.
Fiscal 2024 Outlook
For fiscal 2024, Ulta Beauty has outlined its strategic plans and financial projections, reflecting its confidence in continued growth and profitability. The company anticipates net sales to range between $11.7 billion and $11.8 billion, with comparable sales expected to grow between 4% and 5%, indicating a healthy performance.
Ulta Beauty plans to establish 60 to 65 new stores while undertaking 40 to 45 remodeling and relocation projects to enhance its retail footprint. The company forecasts an operating margin between 14.0% and 14.3%, below the 15% operating margin driven by higher costs and increased marketing expenses.
Diluted EPS is forecast at $26.20 to $27.00, reflecting the company’s strong financial performance and beating estimates. Share repurchases are estimated to amount to approximately $1 billion, underscoring Ulta Beauty’s commitment to returning value to its shareholders.
Interest income is expected to be around $11 million, while the effective tax rate is approximately 24.3%. The company plans capital expenditures ranging from $415 million to $490 million, while depreciation and amortization expenses are forecast at between $275 million and $280 million.
ULTA Stock Performance
Following Ulta Beauty’s Q4 2024 earnings release, the company’s stock took a significant hit, down 7.04% from the previous day’s closing price of $565.44. As of 09:45 AM EDT on March 15, 2024, the stock was trading at $525.66.
With a market capitalization of $27.459 billion, ULTA has seen a 52-week change of 11.65%, compared to the S&P500’s 52-week change of 31.50%. Its 52-week high is $574.76, while the low is $368.02. The 50-day moving average for Ulta Beauty is $515.97, with a 200-day moving average of $452.43. The forward price-to-earnings (P/E) ratio is reported at 20.96, with an average volume of 569.91k shares traded over the past three months.
Should You Buy Ulta Beauty Stock?
Ulta Beauty’s exceptional financial performance in the fourth quarter and fiscal year 2023 underscores its position as a leader in the beauty retail industry. The company’s strategic initiatives, efficient operations, and commitment to shareholder value creation have yielded impressive results.
It reported a strong financial position and robust growth plans. However, its margins forecast caused some jitters among investors. Despite this, Ulta Beauty presents an attractive investment opportunity for investors seeking exposure to the resilient beauty sector. Its lower margins forecast is likely tied to its international expansion and new store openings.
In the long term, this could lead to bigger returns for the company, while the continued share repurchases could further bolster the stock’s growth prospects. Given the positive analysts’ recommendations, Ulta Beauty’s stock could be considered a “Buy” for investors seeking long-term growth and value creation.
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