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Demand for beauty products has far exceeded expectations, giving Ulta enough power to sidestep the problems faced by other retailers. Here, a customer is shopping at her Ulta store.
Courtesy Ulta
ultra beauty
Stocks were a silver lining in an ugly market in 2022, but their stocks still look good in 2023, an amazing feat considering investors are dumping last year’s winners.
For 2022, investors have found a safe haven to hide in Ulta stock (Ticker: ULTA). Rising inflation has weighed on consumers who spend their money on essentials like food and rent rather than discretionary items like TVs and clothing. But the Illinois-based beauty product retailer’s shares fell 19% after the S&P 500 index fell 19%.
SPDR S&P Retail
Exchange-traded funds (XRT) fell 33%. Beauty products seem to be what people need, not what they want.
Ulta continues to outperform the market this year as investors ditch safe-haven stocks in favor of riskier fares. The stock is up 11.6% to $523.59 in 2023, and the S&P 500 index is up 7.3%. This speaks to the opportunities ahead for a company with a $26 billion market cap.Ulta no
Peloton Interactive
(PTON),
Yeti Holdings
(Yeti), or
zoom video communication
(ZM) skyrocketed during the pandemic, only to dry up sales. Demand for makeup continues, and Ulta offers a wide selection of high-end to bargain brands, making it an attractive choice even after its recent sale.
The strength of last year’s Ulta cannot be overstated. Sales for the 2022 calendar year are expected to grow by 17%, and earnings per share are expected to nearly quadruple after his Covid-affected 2020. In its latest earnings report, the company sees cosmetics as making up 44% of his $2.3 billion in net sales. , hair care products and styling tools, which accounted for about one-fifth of sales, also performed well.
Ulta also signaled that it expects the strong period to continue when it raised its guidance for the fiscal year on its third-quarter earnings call in December. In other words, the demand for beauty is off the charts and strong enough for Ulta to sidestep the problems faced by other retailers.
“So if you look at Target and Bed Bath & Beyond, which have been suffering from overstock and slowing demand and have had to step up their promotional efforts, Ulta has actually been able to do just that, simply because demand remains very strong. hasn’t experienced it, says Piper Sandler analyst Colin Wolfmeyer.
Customers use GLAMlab, an app that allows them to virtually try out thousands of beauty products.
Courtesy Ulta Beauty
But after Ulta’s strong move, some observers are concerned about where the stock will go next. For example, Wells Fargo analyst Ike Borchow argued on January 6 that operating profit margins, which were around 16% in 2022, should be closer to their pre-coronavirus 12.2%. downgraded from Equal Weight to Underweight. At the same time, Ulta got a boost from the restart, but analysts wrote that they don’t think this boost will last until 2023.
But beauty may be able to sustain its growth. Products run out and customers are forced to buy new lipsticks, eyeliners and foundations. “Unlike other categories that have benefited from the post-pandemic ‘reopening’, the speed of beauty has been facilitated by necessary unit replacements and is somewhat protected from a significant reduction in spending,” said Ulta of her Jefferies analyst Ashley Helgans, who counts it among the top picks, writes.
And Ulta isn’t the only beauty retailer showing signs of strength.when
LVMH Moët Hennessy Louis Vuitton
(MC.France) last month reported fourth-quarter earnings, announcing that sales reached $24.6 billion, exceeding analyst expectations. On the company’s conference call, his CEO Bernard Arnault said:
LVMH
An Ulta competitor that “really fires on all cylinders.” DA Davidson analyst Michael Baker wrote that Sephora’s performance shows at least an inline quarter for his Ulta.
Ulta has more expensive and affordable products, which could help customers cut back on spending in a downturn. This is Ulta’s skin care corner.
Courtesy Ulta Beauty
Business seems to be holding up well enough that the Ulta deserves a premium rating. Trading at 21 times next year’s earnings estimate of $24.11, the stock is more expensive than the S&P 500, which trades at 18 times. However, it’s cheaper than the five-year average of 23 times, and may have some advantages over other beauty retailers for the higher price.
Ulta’s chief financial officer, Scott Settersten, said that Ulta has more expensive and affordable cosmetics. Barons The company has yet to see consumers do that. Different price points are another difference between Ulta and Sephora, which sells luxury cosmetics.
walmart
(WMT) or a pharmacy with cheap cosmetics.
Ulta has also created a reputation for beating and raising expectations. Exceeding earnings forecasts for the past 10 quarters, she raised full-year guidance in six of the past seven earnings calls. Ulta won’t report fourth-quarter and full-year earnings again until March, when he’s expected to report earnings of $5.54 per share on $3 billion in sales. Raymond James analyst Olivia Tong said don’t be surprised if Ulta does it again.
“The company has historically been pretty successful at beating and raising expectations, so there is a certain premium inherent in that,” she explains.
A premium worth paying for a stock that looks this good.
write destination Angela Palumbo at angela.palumbo@dowjones.com
