Ulta Beauty Sees Improvement in Q3, but Headwinds Still at Play

After a lackluster second quarter, Ulta Beauty’s performance improved in the third quarter, beating Wall Street forecasts on the top and bottom lines.

The beauty retailer’s net sales increased 1.7 percent to $2.53 billion, above analysts’ forecasts of $2.48 billion, according to Factset data. Comparable sales, which cover stores open at least 14 months and e-commerce sales, increased 0.6 percent.

Net income was $242.2 million compared to $249.5 million. Diluted earnings per share were $5.14 compared to $5.07, higher than Wall Street expectations of $4.53.

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Ulta’s shares rose more than 12 percent in after-hours trading to $441 following the earnings release, having closed down 1.74 percent to $392.87.

Nevertheless, the company still faces challenges.

“We are navigating a number of headwinds, including the normalization of the U.S. beauty category, a dynamic consumer environment, and elevated competition, particularly in prestige beauty,” said chief executive officer Dave Kimbell.

“We are starting to see benefit from actions we are taking to reinforce our market position and improve our performance. And while the headwinds have not abated, we are making progress,” he continued. “We believe the beauty category will remain resilient and we are confident the actions we are taking to deliver stronger performance, combined with our outstanding associates who are committed to offering guests authentic, inclusive experiences across all of our touch points, will enable us to reinforce our market position and drive long-term profitable growth.”

Perhaps unsurprisingly, fragrance, the bright spot of beauty, was its strongest category, delivering high single-digit comp growth driven by men’s fragrance, gender neutral fragrances and new products, including new fall and holiday gift sets.

The skin care category delivered midsingle digit comp growth this quarter, as strong growth in body care was partially offset by a decline in prestige skin care. 

Prestige makeup, its largest category, was flat for the quarter.

Ulta expects net sales for the year will be between $11.1 billion and $11.2 billion, a touch up from $11 billion to $11.2 billion. Annual earnings are expected to range between $23.20 and $23.75, up from $22.60 to $23.50. Still, the fourth quarter will have its challenges.

Paula Oyibo, chief financial officer at Ulta, said: “While we are encouraged by our third quarter results and our performance quarter to date, we also acknowledge that the fourth quarter will likely be impacted by a compressed holiday season, a dynamic operating environment, and continued uncertainty around underlying consumer demand.”