Ulta Rallies On Q1 Earnings: 2 Analyst Takes

Ulta Beauty, Inc. ULTA stock closed more than 5% higher Friday after the beauty retailer posted a first-quarter beat and raise, with $1.9 billion in net sales — up 65.2% from $1.2 billion one year earlier and beating the $1.64-billion Street estimate. 

Ulta’s first-quarter net income was $230.3 million compared to a net loss of $78.5 million in the first quarter of fiscal 2020.

Its diluted earnings per share was $4.10, including a 3-cent benefit due to income tax accounting for share-based compensation, versus $1.39 in the first quarter of 2020. 

“We have emerged from 2020 with strong momentum in our sales trends, market share gains, and consumer sentiment,” Ulta President Dave Kimbell said in a statement.

Two Ulta analysts reacted to the retailer's first-quarter performance, remarking on its bounce back from the worst of the pandemic while pointing out a few lingering issues that could slow its financial progress.

Raymond James On Ulta: Joseph Altobello, equity research analyst at Raymond James, maintained a Market Perform rating on Ulta. Ulta posted “very impressive 1Q results that not only demonstrated substantial growth over a depressed COVID-impacted base period, but perhaps more importantly over 1Q19 results as well on sales, margins, and earnings,” the analyst said. 

Altobello increased his forecast for fiscal years 2021 and 2022 adjusted EPS from $9.15 to $11.95 and from $10.15 to $13.25, respectively.

He also echoed Ulta’s acknowledgment from its earnings report that much of its success was driven by the waning of the COVID-19 pandemic and the infusion of federal stimulus funds into consumers’ wallets.

While Ultamate Rewards loyalty membership was down 2% from one year earlier, it was also up 5% from the previous quarter, “reflecting a strong recovery amid store reactivations,” Altobello said, despite the social distancing requirements still in place throughout the quarter.

The analyst warned that Ulta’s brick-and-mortar operations gave him a reason to be concerned about its progress.

“Given the uncertainty and fluidity as it pertains to the sustainability of future in-store traffic, we continue to suggest investors await a more attractive entry point in this high quality name, particularly given the positive move in aftermarket trading.” 

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Telsey On Ulta: Dana Telsey, CEO and chief research officer at Telsey Advisory Group, maintained an Outperform on Ulta and raised the price target from $375 to $400.

Telsey applauded the company’s “better-than-expected results across the board,” with a gross margin that “expanded 1,300 bps to 38.9% (up 190 bps vs. 1Q19), attributable to fixed cost leverage on the stronger topline performance as well as improved merchandise margins, lower salon costs, and a favorable channel shift.”

The analyst highlighted Ulta’s forecast of delivering an approximately 11% operating margin for the full fiscal year, “which compares favorably to the consensus of 9.7% and the 5.7% recorded in FY20, though slightly below the 12.2% reported in FY19.”

Furthermore, Telsey also remarked on the CEO turnover, stating that the strong first-quarter performance will facilitate an easier handoff, and she expressed confidence in the upcoming partnership between Ulta and Target TGT, with the first wave of Ulta shops opening within Target this summer.

Still, Tesley acknowledged that there could be a few issues that would disrupt an otherwise copacetic picture.

“Ulta continues to expect to open 40 new stores but now aims to remodel 19 stores, down from 21 previously,” she wrote. “Labor, wages, fuel, and transportation costs are expected to continue to pressure margins in the back half of the year, and advertising in the second half is expected to be slightly higher vs. initial expectations.”

(Photo by Michael Rivera/Wikimedia Commons.)