Ulta Magnificence Q1 Income: Queen of Cosmetics (NASDAQ: ULTA)

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In my first article overlaying Ulta Magnificence (NASDAQ: ULTA), I applied a maintain suggestion on it, stating that traders ought to look ahead to a withdrawal earlier than shopping for shares. Ulta since my suggestion on April eighth We lowered it to the $ 345 to $ 350 vary earlier than rebounding after receiving some staggering first-quarter earnings outcomes.

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Information from YCharts

Final week, Ulta soared 22.8%, surpassing earnings, and extra importantly, after elevating steering, as proven within the graph above.

Huge quarterly earnings report exceeded expectations and increased guidance

Steerage adjustments (Ulta Q1 Press Launch)

Throughout most of final week’s trip, shares reached $ 340- $ 350 earlier than earnings and had been unable to accommodate the SA neighborhood for Ulta withdrawal and buy alternatives.

Paper abstract

To summarize the paper from my first article, there have been three vital factors that prompted me to purchase ULTA inventory first.

  1. Robust and dependable buyer base
  2. Rising variety of shops and SSS
  3. Stellar Financials & Buybacks

Robust and resilient enterprise mannequin

Ulta’s earnings proved that the cosmetics enterprise was very robust. Ulta’s EPS is $ 6.30 ($ 1.82 beat) and income is $ 2.34 billion ($ 220 million beat), demonstrating robust progress in a harsh atmosphere for a lot of retailers. From the one-month inventory chart beneath, you may see that magnificence retailers are doing their finest when evaluating Ulta to their direct and oblique rivals.

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Information from YCharts

In line with the corporate’s 10-Q:

however I do not suppose inflation has had a big affect on our monetary place Or, in historic efficiency, continued inflationary pressures can negatively affect shopper spending and gross sales.

The above quote demonstrates Ulta’s superiority and management within the cosmetics enviornment. Furthermore, regardless of the retail challenges, they present that they’ve grown a very loyal buyer base. This is a crucial difficulty in my earlier article when it got here to purchasing the primary inventory of Ulta in early 2021.

Proceed to depend on knowledge and leverage tendencies

By the addition of recent manufacturers and the growth of current manufacturers, Ulta continues to develop the depth of its merchandise and drive comparable gross sales progress. CEO Dave Kimbell talked about this within the firm’s first-quarter earnings announcement.

From a development perspective, foundations, concealers, eyeliners and lipsticks proceed to drive robust comp progress. New model Fenty Magnificence, Ariana Grande’s REM Magnificence, and the mass cosmetics model Treslúce, based by Latin musician Becky G, contributed to the expansion of the quarter.

Launches of recent merchandise from a variety of manufacturers reminiscent of Clinique, Lancome, NARS, Elf and NYX additionally contributed to robust gross sales progress. As well as, we expanded MAC to 233 shops this quarter and launched Chanel Magnificence to 104 shops.

Ulta Magnificence’s capability to sport the perfect manufacturers on the cabinets is a crucial supply of its aggressive benefit. As a high canine within the magnificence sector, manufacturers rely considerably on Ulta’s retail distribution to realize publicity to their merchandise. The flexibility to promote well-known model names reminiscent of Ariana Grande, Becky G and Kylie Jenner drives buyer visitors and builds a loyal buyer base.

Loyalty rewards high customer growth

Created by the creator (SA income file)

As proven within the graph above, Ulta continues to drive buyer loyalty by its rewards program with over 37 million Ultamate Rewards members.

Goal partnership is on monitor

Within the earlier article, the partnership between Ulta and Goal (TGT) was an vital catalyst that might additional enhance Ulta’s backside line. With annual revenues of over $ 100 billion, Goal, the eighth largest retailer in america, is producing hundreds of thousands of foot visitors that may profit Ulta.

Ulta’s F’2110-Okay states that in the long term, there could also be about 800 Ultas on the goal location. On a quarterly cellphone name, COO Kecia Steelman commented.

As of at the moment, we now have 140 shops.It was We plan to open greater than 250 shops this 12 months. However we like what we see. While you be part of a member to the Final Rewards Program, you will discover that they behave very very like current loyalty members. In the case of manufacturers, Ulta Magnificence works intently with companions to take care of model companions and assortments, however Goal really owns the sale. Due to this fact, presently, we can’t freely touch upon the sales-specific efficiency of every model.

Ulta can’t touch upon the sales-specific efficiency of the partnership, however has solely opened 100 shops on the finish of F’21 and plans to open 250 shops by the top of the 12 months (30% of the long-term goal). It is good to measure some quantitative efficiency indicators, however it’s no exaggeration to say that partnerships are helpful to Ulta.

Why Ulta Can Resist Inflation

The most popular subjects that may have an effect on the market after COVID are inflation and its affect on america. Nevertheless, Ulta mentioned inflation shouldn’t have a damaging affect on the enterprise. Inflationary occasions, enterprise prosperity requires pricing energy to cross prices on to customers to be able to preserve margins.

When requested about income per transaction, Kimball confirmed that models per transaction had been really flat year-on-year, indicating that clients wish to spend extra per transaction.

the The variety of models per transaction was mainly flat year-on-year. So once more, we see plenty of advantages from persevering with what I usually name a modest promotional atmosphere, coupled with the mix of manufacturers that we added right here over the last 12 months.

With promotional occasions such because the 21 Days of Magnificence and the launch of a brand new model, Ulta’s clients will clearly have the ability to return to the shop and make extra purchases. When requested by analyst Korinne Wolfmeyer if there was a noticeable change between the mass and status manufacturers within the mild of inflation, Kimball mentioned there was no significant change in demand between the 2 segments.

To date, our company are in command of it and we No main affect is seen. Actually, as talked about within the script, Status Make-up carried out a bit higher than Mass Make-up.

… one of many distinctive issues we really feel is on the core of our mannequin Wide variety, all worth ranges from mass to status, all classes, hair and skincare, make-up and baths and fragrances. Due to this fact, with the ability to adapt and adapt as shopper wants evolve has lengthy been true to our mannequin, permitting us to beat and handle market turmoil.However now we’re empowering in each facet of our enterprise

As well as, whereas many might imagine that cosmetics should not wanted regardless of robust gross sales, the information present that skincare and hair care routines are nonetheless legitimate. Within the first quarter, skincare achieved double-digit gross sales, much like the primary quarter of final 12 months.

They enhance the quantity of make-up used, however magnificence lovers Keep their skincare routines. Because of this, skincare achieved double-digit gross sales, along with robust double-digit progress within the first quarter of final 12 months.

Moisturizer, eye serum, pimples care We are going to proceed to drive class progress this quarter. There was additionally robust progress in sunscreens and sunburns, and customers elevated their journey and social actions.

Huge gross profit margin and operating profit margin

Gross revenue and working revenue (Tikr)

The graph above reveals ULTA’s capability to constantly enhance its working margin (inexperienced line within the graph) and preserve a gross margin of 40% (blue line) within the first quarter of 2022. ..

Efforts for repurchase

Because the Oracle of Omaha Warren Buffett emphasizes:

All the businesses we put money into probably the most Have interaction in vital issues inventory Repurchase When there’s a huge discrepancy between worth and worth.

As proven within the second photograph of this text above, Ulta has promised $ 900 million to share the F’22 repurchase. Within the first quarter, Ulta purchased again 332,000 shares at a value of $ 132.8 million, with a mean value of $ 400 per share. $ 132.8 million vital The repurchase proves that Ulta’s administration believes in shares and is targeted on lowering the variety of issued shares to advertise shareholder returns.

Stock buyback, buyback, capital allocation, Warren Buffett

Created by the creator (Ulta 10-Okay (2012-2021))

The graph above additional illustrates Ulta’s robust historical past of constantly lowering diluted inventory numbers and allocating extra capital since 2014. The graph beneath reveals Ulta’s 10-year EPS, which continues to be supercharged by repurchases.

Significant EPS growth

EPS development (Ulta 10-Okay’s)

Ulta’s EPS steering cap ($ 20.10) means a big 12% year-over-year enhance within the F’22.

analysis

Regardless of the rise in Ulta costs, it’s nonetheless buying and selling at a really cheap 20x revenue. That is greater than different retailers, however Ulta’s trade management and above-average margins justify its excessive multiples in comparison with its friends.

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Information from YCharts

As proven within the chart above, Ulta’s price-earnings ratio is buying and selling at about 20x, effectively beneath the five-year common. Ulta is not at all low-cost, however it’s a extremely nice enterprise at a good worth. Whereas the present macro atmosphere can nonetheless trigger short-term headwinds, Ulta nonetheless has robust fundamentals, a high-quality enterprise mannequin, and a rational a number of of income.

Stable enterprise

General, the primary quarter proved that Ulta is definitely the queen of cosmetics and sweetness. By recording file numbers, adopting new manufacturers and persevering with our dedication to purchase again shares, I improve my suggestions for Ulta to purchase. Sure, I do know … At $ 401 final month, I mentioned it was “on maintain” and traders ought to look ahead to a withdrawal. The pullback really occurred, however Ulta shortly rebounded and is sitting simply north of $ 400 on the time of writing this text.

In the end, Ulta is a superb enterprise with extremely loyal clients who sport high manufacturers in each mass and status classes. With a best-in-class loyalty program and the power to adapt to buyer preferences, Ulta is a rare addition to the portfolio.

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