Ulta Beauty's international expansion is a 'no brainer': Analyst
Shares of Ulta Beauty (ULTA) are trading lower after the closing bell on Thursday as the company posted its fourth quarter earnings: the report revealed an adjusted EPS of $8.08 against an estimated $7.57. While the company lifted its fiscal year 2024 outlook, it lowered its comparable sales and operating margins forecast.
Jane Hali & Associates Senior Research Analyst Jessica Ramirez joins the Live show to discuss the company's earnings, outlook, and performance moving forward.
Apart from introducing and expanding its skincare category, Ulta has other positive developments on the horizon, Ramirez signals: "They did bring in a lot of those luxury brands in, so those comparisons are very tough, those prices were much higher. I do think this year we might see normalizing within pricing, and in terms, they did announce expanding into Mexico, which I think that's great. I think that's definitely a market. Sephora is there, so it's going after its competitor. They do have the beauty that it is entry-level...so I think that's still a positive for them. "
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
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JOSH LIPTON: Taking a look at shares of Ulta Beauty. The company topping fourth quarter estimates and lifting its fiscal 2024 earnings outlook. However, the company lowering its comparable sales and operating margin forecast. Jessica Ramirez, Jane Halli and Associates senior research analyst joining us now to break down the latest results. It is good to see you on the show. And maybe just to start, get your reaction, Jessica, to this report. What do you make of it?
JESSICA RAMIREZ: Yeah. So actually, in terms of growth and what's come up, they had very tough figures to lap. So in consideration, they did come up with very positive figures. And I think overall it's a year where we're seeing beauty and especially with Ulta year to normalize. So again, I'm not quite-- I'm not surprised with the results. Again, I think they are good results. But obviously, the Street seems to think otherwise.
JULIE HYMAN: Well, and the company among other things is cutting its operating margin forecast for the full year. So you have to wonder here what it's spending more on or is it not raising prices as much. I guess, we'll find out more on the call. But what have you been seeing trend-wise?
JESSICA RAMIREZ: Yeah. In terms of, I mean, color that will want to hear from the call is, where is pricing going? But again, I think if we look at the lapping of year-over-year they did bring in a lot of those luxury brands in. So those comparisons are very tough, those prices were much higher. I do think this year, we might see some normalizing within pricing. And in terms-- they did announce, they will be expanding into Mexico, which I think is great. I think that's definitely a market. Sephora is there. So it is going after its competitor.
And again, they do have the beauty that it is entry level, beauty points to also proceed. So again, I think that's still a positive for them.
JOSH LIPTON: And Jessica, they're also clearly focused here on the International market. They are apparently forming a joint venture here to launch Ulta Beauty in Mexico next year. What do you-- when you look ahead here internationally, still a lot of runway there for them?
JESSICA RAMIREZ: Yeah. I mean, they're mostly located in the US. As I said, you know, I think Mexico is a great market they are in ties with Grupo, I believe, it's Axo. Again, I think that market is a beauty market. The majority of beauty sales, especially in the US, do come from the Hispanic market. So I think it's a no-brainer to go into a market like Mexico. And like as I said, you know, Sephora has been there. So it does make it a good positioning to go after their competitor.
JULIE HYMAN: You know, Jessica, it seems as though some of the current trends are not necessarily away from makeup. But skincare has obviously been a big trending area. How has Ulta done in that considering that they also have a big makeup business? In your view, have they kept up with the skincare trend adequately?
JESSICA RAMIREZ: Yeah. So they have-- I think if you were to ask me a few years back, I would say they were lagging. But they really have come up to really coming through and expanding their skincare category. If you look at their skincare category, they do focus a lot on viral trends which have been huge in skincare in terms of either Korean beauty or what they have as called as global beauty. There's a lot of interest with clinical beauty, and that's on the rise. I think the consumer is much more interested in that. And we have seen Ulta to really bring in that assortment.
So when I'm looking across at what is making sense with the consumer and where we see the consumer have more interest within beauty, I do see skincare being one of them. And again, they have grown that category sales, have been up, so they have taken from cosmetics. And also, I think the most exciting part about skincare, it's something that's replenishable. So again, we do have the customer coming back to their doors to replenish such an item.
JULIE HYMAN: Jessica Ramirez, thanks so much. Appreciate it.
JESSICA RAMIREZ: Thank you.
