Higher prices at the checkout are not deterring shoppers from stocking up on makeup and skin care at Ulta Beauty.
After beating Wall Street estimates on the top and bottom lines in the third quarter, the Bolingbrook, Illinois-based beauty retailer has once again increased its full-year outlook despite soaring inflation and fears that the U.S. could fall into a recession next year.
Ulta is also encouraged by sales trends it has seen so far during the crucial holiday season despite jitters in the wider retail world, with major companies including Target, with which it has a partnership, downgrading forecasts.
“While predicting holiday shopping patterns this year is challenging, I am optimistic about the opportunity for Ulta Beauty this holiday season,” said Dave Kimbell, chief executive officer of Ulta Beauty, during an analysts’ call.
Chief financial officer Scott Settersten added that Ulta is pleased with the sales trends witnessed through the Thanksgiving holiday shopping weekend, including Cyber Monday.
Net sales rose 17.2 percent to $2.3 billion in the 13 weeks ended Oct. 29, primarily due to the favorable impact from the continued resilience of the beauty category, retail price increases, and the impact of new brands and product innovation compared to the third quarter of fiscal 2021, the retailer said. Analysts polled by Factset had been expecting $2.2 billion.
Within that, cosmetics sales rose 44 percent, hair care 21 percent, skin care 16 percent, fragrance and bath 12 percent, services 4 percent and accessories 3 percent. Ulta also increased market share in prestige beauty, compared with the same quarter in the prior year, although mass generally outperformed prestige.
In skin care, Drunk Elephant, Supergoop, Good Molecules, The Ordinary, Hero Cosmetics and La Roche-Posay were cited as performing well over the quarter. In makeup, its largest category, brands including Fenty and Rem Beauty drove sales during the quarter.
Net income increased 27.5 percent to $274.6 million. Diluted earnings per share increased 35.5 percent to $5.34. Analysts had penciled in $4.15.
For the full year, net sales are now forecast to come in at between $9.95 billion and $10 billion, up from the previous estimate of $9.65 billion to $9.75 billion. Diluted EPS are expected to be $22.60 to $22.90, compared with prior guidance of $20.70 to $21.20.
“Amidst a challenging macro environment, the Ulta Beauty team delivered yet another outstanding quarter, with strong top and bottom-line results and growth across all major categories and channels,” Kimbell noted. “Our third-quarter results reflect the sustained resilience of the beauty category and the strong emotional connection and loyalty we have cultivated with our guests.”
He stressed that its strong product offering in mass and prestige puts Ulta in a strong position in the face of a potential economic downturn. “While it’s hard to know with certainty if we are starting to see consumers trade down — as the only beauty retailer that offers a wide variety of prices from entry-level mass to high-end luxury and everything in between, Ulta Beauty is uniquely positioned to capture any consumer shifts within price points in the beauty category.”
Settersten added, however, that the company is in “uncharted territory right now” in terms of prices.
“The percentage of our assortment where we’ve seen increases and the depth of those increases is something we’ve never experienced in all the years here at Ulta Beauty. So we’re going to be cycling over some of that next year and it’s kind of yet to be seen how the consumer is going to react to that over the longer period of time,” he said.