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Ulta Beauty (ULTA) Stock Up on Q1 Earnings Beat, Raised View

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Ulta Beauty, Inc. ULTA raised its guidance for fiscal 2022 on posting robust first-quarter fiscal 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and increased year over year. Shares of the company rallied 7.1% during the after-market trading session on May 26.

Results were backed by the strong execution of the company’s strategies and solid guest demand, with the latter gaining from the company’s exciting brand launches. Also, increased in-person activities and travel have been leading to the revival of the beauty category demand. While lower than pre-pandemic levels, store traffic is improving. That said, digital trends have also been impressive. The company’s buy online, pick up in store (BOPIS) continued to gain traction in the quarter. BOPIS sales rose 26% and contributed 21% to e-commerce sales in the quarter.

All of Ulta Beauty’s major categories, including haircare, fragrance and bath, skin care and makeup, delivered double-digit growth in comparable sales or comps.

Quarterly Numbers

Ulta Beauty posted earnings per share (EPS) of $6.30, which beat the Zacks Consensus Estimate of $4.44. In the first quarter of fiscal 2021, the adjusted EPS amounted to $4.10.

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

Net sales of this beauty products retailer surged 21% year over year to $2,345.9 million and beat the Zacks Consensus Estimate of $2,135 million. The uptick can be attributed to reduced pandemic-induced restrictions.

Comps jumped 18%, driven by a 10% improvement in transactions along with a 7.3% increase in the average ticket. Transactions in the quarter gained on a double-digit rise in store transactions and the average ticket increased on a rise in the average selling price. Comps took into account stores that were open for at least 14 months and e-commerce sales.

The gross profit advanced from $753.8 million to $941 million. The gross margin rose from 38.9% to 40.1%, mainly led by the leverage of fixed costs, positive channel mix shifts and a solid increase in other revenues. This was partly offset by reduced merchandise margins.

SG&A expenses escalated from $443.9 million to $501 million in the first quarter of fiscal 2022. SG&A expenses (as a percentage of net sales) came in at 21.4%, down from the 22.9% reported in the year-ago quarter. This was mainly due to reduced marketing expenses, store payroll leverage and benefits related to increased sales, partly offset by the corporate overhead deleverage stemming from strategic investments.

The operating income came in at $437.7 million and the operating margin was 18.7%. In the first quarter of fiscal 2021, ULTA posted an operating income of $305.3 million, with the operating margin at 15.8%.

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Other Updates

Ulta Beauty ended the quarter with cash and cash equivalents of $654.5 million. Net merchandise inventories came in at $1.57 billion at the end of the first quarter of fiscal 2022. Stockholders’ equity at the end of the quarter stood at $1,745.6 million. Net cash provided by operating activities was $426.3 million in the 13 weeks ended Apr 30, 2022.

The company repurchased 331,834 shares for $132.8 million in the first quarter. As of Apr 30, 2022, Ulta Beauty had shares worth $1.87 billion left under its buyback program announced in March 2022.

For fiscal 2022, capital expenditures are expected in the band of $375-$425 million.

During the reported quarter, the company introduced 10 new stores along with relocating six. Ulta Beauty ended the quarter with 1,318 stores. The company opened 26 Ulta Beauty at Target shops and ended the first quarter with 127 locations.

For fiscal 2022, ULTA expects 50 net new stores along with 35 store remodeling and relocation projects.

Guidance

Due to a solid first-quarter show and sales trends witnessed in the second quarter so far, management raised its guidance for fiscal 2022.  That said, it continues to expect that uncertainties like inflationary risks on consumer spending behavior could affect the second-half performance. The company is also witnessing inflationary pressure on operating costs like labor, supplies and travel, among others, which is likely to persist throughout the rest of fiscal 2022.

Management now expects fiscal 2022 net sales in the range of $9.35-$9.55 billion compared with the $9.05-$9.15 billion range expected earlier. Comps are expected to rise in the range of 6-8% now compared with the earlier view of 3-4%. Comps are likely to be in the low to mid-teens range in the first half and moderate to a low-single-digit rise in the second half.

Management now expects the operating margin between 14.1% and 14.4%, which was earlier expected between 13.7% and 14%. Likely to leverage in the first half, the operating margin is likely to deleverage in the second half of fiscal 2022. Management also expects the full-year gross margin to be lower in fiscal 2022 compared with fiscal 2021, mainly due to a lower merchandise margin. SG&A expenses are likely to deleverage in fiscal 2022.

For fiscal 2022, earnings are envisioned in the range of $19.20-$20.10 per share now, up from the $18.2-$18.7 per share range expected before.

This Zacks Rank #3 (Hold) stock has gained 0.9% in the past three months against the industry’s decline of 17.7%.

3 Retail Stocks to Bet on

Here are three better-ranked stocks – Dillard's, Inc. DDS, The Kroger Co. KR and MarineMax HZO.

Dillard's, which operates retail department stores, sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 224.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dillard's current financial-year sales suggests growth of 6.1% from the year-ago period. DDS has an expected EPS growth rate of 14.6% for three to five years.

MarineMax, a specialty retailer, sports a Zacks Rank #1. MarineMax has a trailing four-quarter earnings surprise of 32.8%, on average.

The Zacks Consensus Estimate for HZO’s current financial-year sales suggests growth of 16% from the year-ago period.

Kroger, a renowned supermarket company, carries a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 9.9% for three to five years.

The Zacks Consensus Estimate for Kroger’s current financial-year sales suggests growth of 3.2% from the year-ago period. KR has a trailing four-quarter earnings surprise of 22.1%, on average.


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