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Factors Setting the Tone for Ulta Beauty's (ULTA) Q1 Earnings

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Ulta Beauty, Inc. ULTA is likely to witness a solid increase in the top and bottom lines when it reports first-quarter fiscal 2021 numbers on May 27. The Zacks Consensus Estimate for revenues is pegged at $1,649 million, suggesting growth of 40.5% from the prior-year quarter’s reported figure. This also indicates a solid sequential improvement, as the company witnessed a revenue decline of 4.6% in the last reported quarter.

The Zacks Consensus Estimate for earnings has increased 3.4% over the past 30 days to $1.81 per share, which suggests substantial growth from a loss of $1.12 reported in the prior-year period. This renowned beauty products retailer has a trailing four-quarter earnings surprise of 83.6%, on average. In the last reported quarter, the company delivered an earnings surprise of 50.2%.

Key Factors to Note

The company’s focus on its six strategic priorities bodes well. Its foremost priority is to strengthen the omnichannel business and explore the potential of both physical and digital facets. Next, the company is undertaking various tools to enhance the experience of guests, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Thirdly, the company concentrates on offering customers a curated and exclusive range of beauty products through innovation. Toward this end, the launch of Conscious Beauty at Ulta Beauty in October 2020 (across all stores and online) has been yielding results. In January 2021, the company launched Briogeo, a brand formulated for all hair types, across all stores and online.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise
Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

Fourthly, the company is focused on deepening customer engagement by boosting rewards and loyalty programs. Further, management is committed to optimizing its cost structure. In this context, the company is undertaking meaningful steps such as optimizing store portfolio, store management structure, rightsizing corporate structure and optimizing operating cost structure. Apart from these, the company strives to boost organizational talent and strengthen culture.

Apart from these, Ulta Beauty has been gaining on its robust skincare category. Consumers have been showing rising interest in new brands like The Ordinary, TULA and Beekman 1802, as well as established brands like CeraVe, First Aid Beauty and La Roche-Posay. Consumers’ increased focus on skincare and hair amid higher at-home grooming works well for this category. Management has been focused on boosting skincare growth by strengthening its brand portfolio and undertaking digital innovation. Management on its fourth-quarter fiscal 2020 earnings call said that with COVID-19 vaccines being rolled out, it expects the business to gradually strengthen in fiscal 2021. We believe that these upsides bode well for the quarter under review.

That said, softness in the makeup category due to delayed innovation, along with reduced makeup usage due to masks as well as the pandemic-led social distancing and fewer outings, has been a worry. However, categories focused on areas above the mask, such as lashes, eyes and brows have been performing well. Also, the company has been incurring high costs associated with COVID-19.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Ulta Beauty this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ulta Beauty currently has a Zacks Rank #3 and an Earnings ESP of +10.22%.

Other Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season.

Big Lots BIG has an Earnings ESP of +6.70% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco COST has an Earnings ESP of +2.75% and a Zacks Rank #3.

Burlington Stores BURL has an Earnings ESP of +8.49% and a Zacks Rank #3.

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