Dive Brief:
- Ulta Beauty’s third quarter net sales grew 12.9% year over year to $2.9 billion, helped along by comp growth, new stores and the July acquisition of Space NK. Comparable sales jumped 6.3%, driven by increases in both average ticket and transactions, per a Thursday press release.
- The beauty retailer’s gross profit grew 14.9% to $1.2 billion and net income dropped 4.7% to $230.9 million. During the quarter, Ulta opened 28 new stores and closed one location.
- Ulta raised its full-year net sales guidance to about $12.3 billion from a prior outlook of $12 billion to $12.1 billion. It also raised its comps projection to between 4.4% and 4.7%, up from the previous 2.5% to 3.5% estimate.
Dive Insight:
A drop in consumer sentiment is not stopping consumers from spending on beauty.
“Despite a softening in overall consumer confidence in Q3, beauty engagement remained healthy,” CEO Kecia Steelman told analysts on a Thursday call. “Our insights suggest beauty consumers' budgets are tight and they are focused on value.”
Ulta saw comp growth across channels for the quarter, with double-digit strength in e-commerce. All major product categories delivered positive comp growth, Steelman added, with fragrance remaining Ulta’s strongest growing category.
“Ulta's Q3 print confirms resilient beauty/wellness spend despite macro caution,” Jefferies analysts led by Ashley Helgans said in a Friday note. “Category engagement remains high as consumers prioritize routines.”
Tariff-related price increases did impact the personal styling tools category, which saw a sales decline during the quarter, per Steelman.
Such price changes are starting to impact more brands the retailer carries.
“While many of our brand partners continue to be cautious about passing through tariff-related price changes, we saw more brand-driven price increases in Q3 as compared to Q2,” controller and interim CFO Chris Lialios said on the call.
A variety of factors, including improved shrink, helped the beauty retailer thrive in the quarter, according to analysts.
“Ulta Beauty delivered nice upside to comp expectations in the third quarter, with meaningfully better gross margin from an unquantified shrink benefit and better merchandise margins, aided by a timing benefit from marketwide price actions under its average-cost inventory method, which is expected to reverse out over the next few quarters,” William Blair analysts led by Dylan Carden said in a Friday note.
Beyond Ulta’s U.S. footprint growth, the retailer also opened seven stores in Mexico during Q3 through its partnership with Grupo Axo. The company opened its first two locations in the region in August and plans to have a total of nine opened by the end of fiscal year 2025.
