The persistently high inflation has plagued consumer sentiment, affecting demand across various industries. U.S. retail sales fell more than expected in December. Purchases at stores, restaurants, and online declined 1.1% in December from the prior month. 

Despite the uncertain macroeconomic conditions, Ulta Beauty, Inc. (ULTA) announced higher-than-expected EPS and revenue in the third quarter of 2022. Its EPS was 29.3% higher than the consensus EPS estimate, and its revenue beat analyst estimates by 5.8%.

Post its solid third-quarter results, ULTA’s CEO Dave Kimbell said, “Amidst a challenging macro environment, the Ulta Beauty team delivered yet another outstanding quarter, with strong top and bottom-line results and growth across all major categories and channels.”

“Our third quarter results reflect the sustained resilience of the beauty category and the strong emotional connection and loyalty we have cultivated with our guests. I am confident our business model, which offers unmatched breadth, value, and convenience, is even more relevant today and unlocks opportunities to further delight guests as we continue to lead the beauty category,” he added.

The company upgraded its outlook for fiscal 2023. ULTA now expects its net sales to be between $9.95 billion to $10 billion, compared to the previously expected $9.65 billion to $9.75 billion. Moreover, it raised the EPS estimate from $20.70-$21.20 to $22.60-$22.90.

ULTA’s stock has gained 26.4% in price over the past three months and 31.3% over the past year to close the last trading session at $488.12.

Here's what could influence ULTA’s performance in the upcoming months:

Robust Financials

ULTA’s net sales increased 17.2% year-over-year to $2.34 billion for the third quarter ended October 29, 2022. The company’s gross profit increased 22% year-over-year to $962.82 million. Its net income increased 27.5% year-over-year to $274.58 million. Also, its EPS came in at $5.34, representing an increase of 35.5% year-over-year.

Revenue and EPS Growth Estimates

Analysts expect ULTA’s EPS for fiscal 2023 and 2024 to increase 27.1% and 5.3% year-over-year to $22.86 and $24.07, respectively. In addition, its revenue for fiscal 2023 and 2024 is expected to grow 15.6% and 7.1% year-over-year to $9.98 billion and $10.69 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, ULTA’s 2.71x is 128.4% higher than the 1.19x industry average. Likewise, its 2.49x forward P/S is 174.3% higher than the 0.91x industry average. Its 15x EV/EBITDA is 53.3% higher than the 9.79x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, ULTA’s 43.75% is 23% higher than the 35.58% industry average. Likewise, its 18.61% trailing-12-month EBITDA margin is 68.4% higher than the industry average of 11.05%. Furthermore, the stock’s 16.09% trailing-12-month EBIT margin is 102.2% higher than the industry average of 7.96%.

POWR Ratings Reflect Uncertainty

ULTA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ULTA has a C grade for Stability, consistent with its 1.32 beta.

It has a B grade for Sentiment, in sync with favorable analyst estimates. Also, its high profitability justifies its A grade for Quality.

ULTA is ranked #15 out of 46 stocks in the Specialty Retailers industry. Click here to access ULTA’s Growth, Value, and Momentum ratings.

Bottom Line

ULTA is currently trading above its 50-day and 200-day moving averages of $460.59 and $415.28, respectively, indicating an uptrend. The company topped its EPS and revenue estimates in the third quarter. Also, ULTA has raised its guidance for fiscal 2023.

Its robust financials, high profitability, and favorable analyst estimates make it an attractive investment prospect. However, given its stretched valuation, it could be wise to wait for a better entry point in the stock.

How Does Ulta Beauty, Inc. (ULTA) Stack up Against Its Peers?

While ULTA has an overall POWR Rating of C, you might want to consider investing in the following Specialty Retailers stocks with an A (Strong Buy) or B (Buy) rating: Murphy USA Inc. (MUSA), The ODP Corporation (ODP), and TravelCenters of America Inc. (TA).

ULTA shares were trading at $492.31 per share on Friday morning, up $4.19 (+0.86%). Year-to-date, ULTA has gained 4.95%, versus a 2.18% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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