Ulta Beauty (ULTA) reported solid results in its second quarter earnings report Thursday, beating expectations, although the market did not have an overly exuberant response.
For the quarter ended July 29, Ulta reported revenue growth of 10.1% to $2.5 billion as its diluted earnings per share (EPS) rose 5.6% to $6.02. The increase in revenue was driven by increased comparable-store sales, which surged 8%, strong new store performance, and growth in other revenue, the company said.
“The Ulta Beauty team delivered another quarter of strong performance, with sales, gross profit, and SG&A expenses all better than our internal expectations,” stated CEO Dave Kimbell about Ulta’s earnings report. “The beauty category has continued to deliver healthy growth, as consumers maintain their post-pandemic routines and expand their definition of beauty.”
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Even though Ulta beat on earnings, its margins were under pressure in the quarter, including a 110 basis point contraction in its gross margin to 39.3%, which is said was “primarily due to lower merchandise margin, higher inventory shrink, and higher supply chain costs, partially offset by strong growth in other revenue and leverage of store fixed costs.”
The beauty retailer’s stock reacted to the news by falling slightly at the open of the day’s trading session. It was down about 3% by Friday early afternoon.
Shrink, the retail industry’s terminology for theft, has been a major theme this earnings season, especially in the reports of Dick’s Sporting Goods, Target, Dollar Tree, and Foot Locker, as Kiplinger recently reported.
“Inventory shrink continued to be a headwind this quarter. Our efforts to address shrink are having an impact, but the overall environment remains challenging,” Chief Financial Officer Scott Settersten stated on the conference call.
Fortunately, Ulta has been able to navigate the many issues facing the industry and still deliver better-than-expected earnings. As a result, Ulta raised its full-year outlook for 2023. It now expects revenue in the range of $11.05 billion to $11.15 billion, comparable-store sales growth of 4.5% to 5.5%, an operating margin in the range of 14.6% to 14.8%, and diluted EPS of $25.10 to $25.60.
“Our updated outlook reflects our strong first half performance while continuing to consider risks and uncertainties that could impact demand in the second half of the year, including rising consumer debt levels and the expected resumption of student loan repayments,” Settersten stated.
“As we look to the future, we are focused on capitalizing on the growth opportunities in the beauty category and executing our strategic framework to deliver long-term sustainable growth for all our stakeholders,” Settersten concluded.
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