Ulta Beauty posted strong second quarter earnings, raised its guidance and brushed off increased competition from former retail partner Target.
“What I would say is that beauty has always been a competitive category,” Ulta CEO Kecia Steelman said on an earnings call Thursday when an analyst noted Target’s new Beauty Studio concept. “We expect the battle for share to remain intense. Our job isn't to chase competitors. It's to really lean into what differentiates Ulta Beauty and execute it even better.”
An important part of that differentiation is providing exclusive merchandise, the executive said, adding that Ulta’s guidance has also built in the option to remain promotional as needed in such a competitive environment.
The beauty retailer’s Q2 net sales increased nearly 9% year over year to $3 billion, with comps growing 3.8%.
Ulta raised its full-year guidance, now expecting net sales growth of 6.7% to 7.2% and comps growth of 3.2% to 3.7%. That compares to previous projections of net sales growth of 6% to 7% and comps growth of 2.5% to 3.5%.
Analysts, however, called out the somewhat softer guidance for the second half of the year.
“Ulta delivered another top and bottom line beat and raised the full year guidance across all key metrics,” William Blair analysts said in an emailed note Friday. “The updated outlook accounts for tougher comparisons in the back half, ongoing competitive intensity, and an evolving macro backdrop.”
Management is likely embedding a “degree of conservatism in its outlook,” TD Cowen analysts said in a separate note.
Comp sales in makeup were nearly flat compared to last year. Steelman said this was due to growth in prestige makeup offerings being offset by a drop in mass sales, citing a lack of newness in the latter category.
“We view the current split as consistent w/ an early-cycle setup, with prestige participating first and mass awaiting a broader innovation response,” Jefferies analysts said in emailed remarks. “We would watch the 2H launch cadence for evidence the recovery is broadening past prestige and into mass.”
Meanwhile, fragrance remained the company’s biggest growing category, and hair care comps also increased in the period.
