Company Reports

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive despite economic conditions and other external challenges. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with more than 43 million active members—an enhanced loyalty program. Sales increased to $11.2 billion in 2023 from $912 million in 2007 as Ulta opened more than 1,000 stores, its shops became more productive, and its e-commerce developed. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Narrow-moat Ulta Beauty beat our expectations in 2023’s fourth quarter (ended January 2024), but its shares retreated 7% in aftermarket trading on March 14. We think investors may have been disappointed by Ulta's subdued 2024 outlook, although it aligned with our forecast. Moreover, shares had reached an all-time high after rising 16% since the beginning of January. Although we expect to raise our $387 fair value estimate by a mid-single-digit percentage due to the strong 2023 performance, we rate the shares as overvalued.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive despite the COVID-19 crisis and other external challenges. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with more than 42 million active members—an enhanced loyalty program. Sales increased to $10.2 billion in 2022 from $912 million in 2007 as Ulta opened more than 1,000 stores, its shops became more productive, and its e-commerce developed. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Overcoming a challenging retail environment, Ulta Beauty basically maintained its 2023 guidance after reporting third-quarter results that beat our estimates. Investors cheered the report and outlook, sending its shares up 12% during postmarket trading on Nov. 30. We expect to lift our $378 fair value estimate by a low-single-digit percentage given the retailer’s momentum, but would suggest that investors wait for a more attractive entry point.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive despite the COVID-19 crisis and other external challenges. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with more than 41 million active members—an enhanced loyalty program. Sales increased to $10.2 billion in 2022 from $912 million in 2007 as Ulta opened more than 1,000 stores, its shops became more productive, and its e-commerce developed. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Narrow-moat Ulta Beauty defied concerns around consumer spending to deliver top- and bottom-line outperformance in the second quarter. While second-half comparisons will be challenging and the economic outlook is murky, the firm raised its full-year guidance marginally. Specifically, it lifted its outlook for same-store sales growth to 4.5%-5.5% from 4%-5%, for operating margin to 14.6%-14.8% from 14.5%-14.8%, and for EPS to $25.10-$25.60 from $24.70-$25.40. We expect to raise our pre-report estimates of 5% same-store sales growth and $25.19 in EPS slightly given this outlook and Ulta’s second-quarter results, which should result in a mid-single-digit percentage lift to our $365 per share fair value estimate. However, we view Ulta’s shares as mildly overvalued as we believe its operating margins have peaked at about 14%-15% and anticipate its same-store sales growth will level off at about 4.5% in the long run.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive since the worst of the COVID-19 crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with 41 million active members—an enhanced loyalty program. Sales increased to $10.2 billion in 2022 from $912 million in 2007 as Ulta opened more than 1,000 stores, its stores became more productive, and its e-commerce developed. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Ulta Beauty recorded mixed results in 2023’s first quarter as its 9.3% same-store sales growth eclipsed our 7% estimate, but elevated costs affected its profitability and there are signs that consumer spending on beauty is moderating after two very strong years. The firm held its full-year same-store sales guidance of 4%-5% (against a tough comparison), but slightly lowered its operating margin guidance (to 14.5%-14.8% from 14.7%-15.0%). We do not expect to make any material change to our $364 per share fair value estimate and continue to view shares as overvalued, even after sliding 8% in postmarket trading. While we rate Ulta as a narrow-moat firm that can continue to draw shoppers away from traditional beauty sellers, we also consider the competitiveness of its space, the discretionary nature of its products, and its reliance on beauty manufacturers in our valuation. Indeed, the firm reports that some competitors are resorting to higher discounts in response to slowing demand, and there is some indication that consumers are choosing lower-priced mass beauty products over prestige products.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive since the worst of the COVID-19 crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with 40 million active members—an enhanced loyalty program. Sales increased to $10.2 billion in 2022 from $912 million in 2007 as Ulta opened more than 1,000 stores, its stores became more productive, and its e-commerce developed. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Wrapping up an exceptional year, narrow-moat Ulta Beauty lapped our expectations in 2022’s fourth quarter, posting 15.6% same-store sales growth against our 7.5% forecast. While approximately 500 basis points of the increase was attributable to price increases, traffic remained very strong (transactions were up 13.6%). Although there has been much concern over slower consumer spending amid high inflation, beauty, powered by a rising interest in wellness and product innovation, has been very resilient. Given the outperformance, we expect to lift our $352 fair value estimate by a mid-single-digit percentage, but view Ulta’s shares as overvalued.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive since the worst of the COVID-19 crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with 39 million active members—an enhanced loyalty program. Sales increased to $8.6 billion in 2021 from $912 million in 2007 as Ulta opened more than 1,000 stores and its stores became more productive. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Continuing its hot streak, narrow-moat Ulta Beauty soared past our sales and profit expectations in 2022’s third quarter. Moreover, despite concerns that consumer spending is slowing as a result of inflation, the company reports that the holiday season is off to a good start, and it sees no evidence of trading down to less expensive products. Indeed, it guided to 6%-8% same-store sales growth in the fourth quarter, above our 3% estimate. Thus, we expect to lift our $339 fair value estimate by a mid-single-digit percentage. However, although we view Ulta as a very strong retailer and forecast rising earnings through this decade, we view its shares, trading near all-time highs, as overvalued.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive since the worst of the coronavirus crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and—with more than 38 million members—an enhanced loyalty program. Sales increased to $8.6 billion in 2021 from $912 million in 2007 as Ulta opened more than 1,000 stores and its stores have become more productive. This success has made Ulta a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Outperforming department store competitors that have suffered softer sales trends, Ulta Beauty posted stellar results in second-quarter 2022. Our narrow moat rating for the firm is partly based on its ability to reach a wide variety of consumers by stocking mass and prestige beauty brands, a characteristic that is serving it well in the current uncertain economic environment. We expect to lift our $323 fair value estimate by a mid-single-digit percentage due to its healthy results and outlook, but continue to view Ulta’s shares as expensive.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed it to thrive since the worst of the coronavirus crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and, with more than 37 million members, an enhanced loyalty program. Ulta’s sales increased to $8.6 billion in 2021 from $912 million in 2007 as it opened more than 1,000 stores and its stores have become more productive. Ulta’s success has made it a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Despite higher costs and fears that inflation could dampen consumer spending, Ulta Beauty posted strong results in 2022’s first quarter as makeup sales (both prestige and mass) have recovered to pre-pandemic levels. We expect to lift our fair value estimate of $305 by a mid-single-digit percentage, but view Ulta’s shares (up about 7% in postmarket trading) as overvalued.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed it to thrive since the worst of the coronavirus crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and, with more than 37 million members, an enhanced loyalty program. Ulta’s sales increased to $8.6 billion in 2021 from $912 million in 2007 as it opened more than 1,000 stores and its stores have become more productive. Ulta’s success has made it a desirable partner for prestige and niche beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.

Ulta Beauty’s results for 2021’s fourth quarter beat our estimates as demand for beauty products remains high while the economy recovers from the worst of the pandemic. Further, despite concerns that inflation could affect consumer spending, the firm’s 2022 guidance for 3%-4% comparable sales growth and an operating margin of 13.7%-14% matches up well with the outlook presented at its October analyst event and our estimates of 3.5% and 13.4%, respectively. Given its momentum and a reversal of our prior expectation of a higher U.S. corporate tax rate, we expect to lift our fair value estimate of $282 per share by a high-single-digit percentage but continue to view its shares as overvalued.

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed it to thrive since the worst of the coronavirus crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and an enhanced loyalty program (more than 35 million members). Ulta’s sales have increased to (projected) $8.6 billion in 2021 from $912 million in 2007 as it has opened more than 1,000 stores and its stores have become more productive. Ulta’s success has made it a desirable partner for prestige and niche beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation. A recent survey by Teads found that two thirds of women prefer to buy beauty products in physical stores.

Fine execution and the ongoing surge in demand for beauty as the economy reopens powered Ulta’s sales and margin outperformance in 2021’s third quarter. Moreover, we think the holiday outlook is bright as its guidance suggests fourth-quarter comparable sales growth of 15%-20% versus our 15% forecast. Thus, we intend to lift our per share fair value estimate of $259 by a high-single-digit percentage, although we view its shares, up 5% in post-market trading, as fully valued.