Ulta Beauty’s Rapid Sales Growth Begins to Moderate

Ulta Beauty’s stock price dipped as much as 10 percent in after-market trading Thursday as its period of rapid sales growth began to moderate.

Net sales increased 12.3 percent to $2.6 billion in the first quarter of fiscal 2023, compared to $2.3 billion in the same period last year. This was roughly in line with analysts’ predictions of $2.62 billion.

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Comparable sales, which include stores open at least 14 months and e-commerce sales, increased 9.3 percent compared to an increase of 18 percent in the first quarter of fiscal 2022.

“We entered 2023 anticipating that the unprecedented growth in the beauty category would moderate and that the promotional environment would increase,” said chief financial officer Scott Settersten during a call with analysts. “These trends materialized in the first quarter and are reflected in our results.”

As has happened in previous quarters, sales in the mass category at Ulta Beauty grew faster than prestige ones, but the retailer stressed that it was too early to tell if this is a sign of trade down in an uncertain economic environment.

“It is difficult to know with certainty if the robust growth of mass products is due to strong engagement with innovative mass brands, such as E.l.f. and La Roche Posay or due to increased consumer price sensitivity,” added chief executive officer Dave Kimbell during the call.

A breakdown of the numbers showed that skin care was its best performing category once again with both prestige and mass delivering double-digit comp growth. Color cosmetics delivered high-single-digit growth for the quarter, while the fragrance and bath categories saw low double-digit percent growth, while the hair category was flat.

Its services business, meanwhile, delivered double-digit comp growth again this quarter, driven by growth in cut and style, blowout and makeup services.

Its 2023 outlook for net sales is now $11 billion to $11.1 billion, compared with a previous forecast of $10.95 billion to $11.05 billion.

Net income increased 4.7 percent to $347.1 million, compared to $331.4 million a year earlier. Diluted earnings per share increased 9.2 percent to $6.88, above Wall Street forecasts of $6.82.

“While we expect the operating environment to continue evolving, we remain confident in the resilience of the beauty category and in our ability to drive share and profitable growth with our proven business model, a diverse, best-in-class assortment, an industry-leading loyalty program, and our world-class team,” Kimbell said.

Later on during the earnings call, Kimbell noted that Ulta is continuing to see pressure from inventory shrink, partly due to organized retail crime, a trend other retailers are experiencing.

“We have updated our full-year guidance to reflect the persistence of this trend,” he said. “Our shrink is the result of various factors. Theft, specifically organized retail crime or ORC is an increasingly concerning challenge, especially as we’ve seen a rise in violence and aggression during these incidents.”

Before the results were released, Ulta’s shares closed up 0.8 percent to $485.12.

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