Ulta Beauty (NASDAQ: ULTA) had a lot of good news for investors in its latest earnings update. Both sales and results exceeded the pace set by management’s guidance for the full year thanks to a strong rebound in traffic to its stores.
The results looked excellent compared to the period the previous year, when COVID-19 devastated the business. But Ulta’s latest metrics also set new records for the company in key areas such as sales, putting it in a position to fully rebound in 2021.
The big surprise was the growth. As the announcement drew near, Wall Street analysts were looking for sales to increase 40% year-over-year to $ 1.6 billion. This boost would have marked a solid rebound from last year while keeping Ulta’s activity below its 2019 levels.
Instead, revenue jumped 65% to $ 1.94 billion, easily surpassing the $ 1.74 billion reported by the company in fiscal 2019, its last first quarter performance before COVID. . The company got help from a booming e-commerce segment, but the biggest factor was a 53% spike in customer traffic.
Comparable store sales were up 7% from 2019, management said. “We came out of 2020 with strong momentum in our sales trends, market share gains and consumer sentiment,” Company President Dave Kimbell said in a press release.
Increase in consumer spending
Profits benefited from a few positive factors including an increase in average spend, higher prices, and a tilt in demand towards high-end products in the makeup, hair and skin care niches. Gross margin reached 38.9% of sales compared to 37.0% two years ago. The operating margin was equally strong at 15.8% versus 13.6%. Overall, net income jumped to $ 230 million, offsetting the loss of $ 79 million from the previous year.
Cash flow was strong and Ulta ended the period in a flexible inventory position thanks to strong demand. “The team has had an exceptional start to the year,” said CEO Mary Dillon, “with sales and profits exceeding Fiscal 2020 and Q1 Fiscal 2019 levels.”
A great upgrade of outlook
Ulta’s new outlook for fiscal 2021 is much better than that published by management just three months ago. Executives are now seeing same-store sales increase by 23% to 25% from previous forecasts of 15% to 17%. This momentum implies that the chain will more than fully rebound from the pandemic this year, rather than next year.
Profit forecasts were also significantly improved, with the operating margin expected to reach 11% from 9%. While this is still lower than the 12.1% Ultra reported in 2019, the trend suggests that it won’t be long before Ultra can start increasing profitability.
All of this good news gives the company the flexibility to pursue new store openings through its partnership with Target. While this initiative offers a valuable avenue for growth, Ulta’s growing customer traffic also shows that its store base has the potential to expand beyond the current 1,300 locations.
Investors feared that the store’s footprint would slowly increase over the next several years. But if Ulta can continue to set new traffic records, management can target faster store launches in addition to its other growth plans.
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