Ultimate Beauty (NASDAQ:ULTA) Inventors recently shocked by announcing a surprise return to sales growth in early 2021. Not only was the first quarter a huge uptick from a year ago when COVID-19 shutdowns peaked, but revenue also set a new all-time high.
In a conference call with Wall Street analysts, new CEO Dave Kimbell and his team explained what this success means for the rest of 2021 and for Ulta’s larger growth ambitions.
Let’s take a look at some highlights from this presentation.
1. Gain market share in a growing industry
“We grew our market share in all major prestige beauty categories,” Kimbell said. “Additionally, we’ve seen tremendous strength in our mass categories and believe we’re also increasing our share in mass beauty.”
Just about everything worked for Ulta Beauty last quarter, with support coming from relaxed social distancing needs, federal stimulus measures and a flood of new launches from makeup, beauty and skincare manufacturers.
Still, the company has earned more than its fair share of this industry’s growth as beauty shoppers have increasingly chosen its stores and e-commerce platform over its rivals.
Revenue was up 66% from a year ago and 7% from the first quarter of 2019. “Sales were strong across all channels,” Kimbell said, “with stores opening the way, as consumers become more comfortable with shopping. [in person].”
2. Profit Gains and Losses
“Strong revenue growth, particularly in the physical sector, combined with the impact of our cost optimization efforts, resulted in a strong operating margin performance,” commented the CFO. Scott Settersten.
The earnings overview was bright as margins increased from last year and 2019. Ulta’s cost reduction program amplified gains from increased sales base and reduced the need for price reductions, allowing profits to grow much faster than revenues.
It wasn’t all good news on this score, however. Makeup still represents a smaller portion of the overall business today than a year ago, and it’s a niche that tends to generate higher margins. Ulta also benefited from temporary lifts like reduced labor costs in the lounge section. Investors should nonetheless be pleased with the good operating margin, cash flow and inventory trends the retailer has recorded to start 2021.
3. Much brighter prospects
“While the presence of vaccines and new guidance from the CDC gives us optimism for the recovery, our visibility on the trajectory and sustainability of recent trends is limited and the second half of the year remains difficult to predict,” Settersten added.
Ulta does not have a clear enough view of demand to make concrete forecasts for the second half. Still, its surging customer traffic during the first quarter and early second quarter gave management the confidence to raise its full-year guidance. Sales will set a new record this year rather than next, executives said, and profit margin will rebound to 11% of sales from 9%.
The company has made no changes to its modest store growth plans that only require 40 new locations in addition to the smaller format. Target spear. But a few more quarters of this level of performance could have Ulta looking to pick up the pace of expansion again after pushing the brakes for the past two years.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.