Key Points
Ulta's sales and profits are growing steadily.
Management plans to repurchase up to $1 billion worth of stock.
Shares of Ulta Beauty (NASDAQ: ULTA) declined on Friday after the cosmetics retailer released its quarterly earnings report.
Image source: Getty Images.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Ulta's expansion strategy is working
Ulta's net sales grew 8.9% year over year to $3 billion in its second quarter ended Aug. 1. Store openings, higher sales at existing locations, and the skincare product purveyor's acquisition of British beauty retailer Space NK drove the gains.
Ulta opened 14 net stores during the quarter, bringing its total to 1,622 as of Aug. 1. That includes 1,534 in the U.S. and 88 in international markets, over 80 of which were obtained from its purchase of Space NK.
The company's comparable sales, which measure revenue at stores and e-commerce sites open for at least 13 months, rose 3.8%.
Ulta is doing a solid job of managing its inventory levels and keeping a lid on expenses. Its operating income jumped 10.1% to $379.6 million.
All told, Ulta's earnings per share climbed 13.3% to $6.55. That topped Wall Street's estimates, which had called for per-share profits of $6.20.
The sell-off is creating an opportunity for investors
Some analysts pointed to Ulta's muted traffic growth and higher promotional activity, which weighed slightly on its gross margin, as potential concerns. But there wasn't much to not like about the cosmetics seller's Q2 report.
Moreover, management raised its forecast for full-year net sales and operating income growth to 6.7%-7.2% and 8.3%-9.3%, respectively. It also boosted its projection for earnings per share to $28.70-$29.00.
"We continue to strengthen our position as the ultimate beauty discovery destination, leveraging our unique understanding of our guests to drive excitement and growth through compelling innovation, value, experiences, and convenience," CEO Kecia Steelman said.
With Ulta's shares now trading at roughly 18 times its earnings projections, value-focused investors may wish to consider buying its stock at a discount.
If you decide to invest, you'll likely be buying alongside Ulta. The beauty products leader intends to buy back up to $1 billion worth of its shares by the end of fiscal 2026.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ulta Beauty. The Motley Fool has a disclosure policy.