Although net income fell year over year, Ulta Beauty beat Wall Street estimates for earnings and revenue as the company invested in initiatives, particularly on the digital side, and added Target shops.
The figure in the year-prior period included a two-cent benefit due to income tax accounting for stock-based compensation, the company maintained.
Ulta beat a Zacks Investment Research analyst consensus estimate on earnings, which it had pegged at $4.96 and revenues, pegged at $2.47 billion.
Comparable sales gained 4.5% driven by a 5.9% increase in transactions and a 1.4% decrease in average ticket.
Net sales increased to $2.49 billion from $2.34 billion in the year-previous quarter, Ulta reported, primarily due to the comp gain, positive new store performance and strong growth in other revenue, which includes credit card income and royalties generated by Ulta’s Target partnership, the company stated. Operating income was $327.2 million versus $361.9 million in the year-before period.
Sales of services and accessories and other goods came in flat in the quarter year over year, while cosmetics came in down two points to 42% and healthcare products and styling tools came in down two points to 19%. On the upside, skincare gained three points to 19% and fragrance and bath gained 1% to 13%.
Ulta opened 12 locations in the third quarter to increase its store count to 1,374.
In a conference call, Scott Settersten, Ulta CFO, said the promotional retail environment and costs including investments in labor, higher store-related charges and shrink all pressured results. However, he added that Ulta has pursued initiatives that have stabilized shrink losses. Corporate overhead was up primarily due to investments in strategic priorities including advancing digital capabilities.
Ulta CEO Dave Kimbell pointed out in the conference call that the company opened 89 Ulta Beauty at Target shops during the quarter, ending with 510. Ulta launched a curated assortment of Dyson hair tools in select stores as well as holiday sample kits in all its Target shops in time for the holidays.
Kimbell added that the company’s efforts to update its digital operation continue as it aims to help shoppers move effortlessly between physical and digital channels. Ulta is investing to enhance guest experience across all touchpoints as part of a multiyear digital transformation effort to upgrade infrastructure and deliver a more engaging and seamless online guest experience, he said, while also positioning future growth. Ulta completed a significant step in the process in August with the transition of the company’s e-commerce experience, including cart motions, checkout and member account data to the newly established architecture. Ulta intends to complete its digital store transition in 2024’s first half and expects to complete the upgrade of its ERP platform and the expansion of its data management systems in 2024’s second half.
In announcing the financial result, Kimbell said, “The third quarter represented another strong performance by the Ulta Beauty team, as sales, gross profit and diluted EPS all exceeded our internal expectations. Our traffic trends remained healthy, our brand awareness increased, and we expanded our loyalty program to a record 42.2 million members. As we look to the future, the outlook for the beauty category is bright, and I am confident Ulta Beauty has the right plans in place to delight our guests this holiday season, expand our leadership position in specialty beauty retail, and deliver long-term shareholder growth.”
