Ulta Beauty (ULTA -0.27%), a leading beauty retailer known for its wide variety of cosmetics, skincare, and hair products, released its fiscal second-quarter results on Aug. 29. The company reported net sales of $2.552 billion, a small increase from $2.530 billion in the prior-year period. However, its comparable sales declined by 1.2%, contrasting sharply with the 8% increase in the same period the previous year. Gross profit also fell to $978.2 million, or 38.3% of net sales, down from $993.6 million, or 39.3% of net sales. Diluted earnings per share (EPS) also decreased to $5.30 from $6.02.
| Metric | Fiscal Q2 2024 | Fiscal Q2 2023 | % Change (YoY) |
|---|---|---|---|
| Net sales | $2.552 billion | $2.530 billion | 0.9% |
| Comparable sales growth | (1.2%) | 8.0% | N/A |
| Gross profit | $978.2 million | $993.6 million | (1.6%) |
| Gross profit margin | 38.3% | 39.3% | (1 percentage point) |
| Diluted EPS | $5.30 | $6.02 | (12%) |
Source: Ulta Beauty.
Understanding Ulta
Ulta Beauty is a well-established retailer offering a range of beauty products. It operates more than 1,350 stores and has a robust online presence. Key focuses for Ulta have been its exclusive offerings and its highly successful loyalty program. The company's recent strategic initiatives have centered around enhancing its omnichannel capabilities and expanding its store footprint.
Quarterly Highlights
For its fiscal Q2, which ended Aug. 3, Ulta reported several notable results. Net sales, as noted, grew, but at a rate that pales in comparison to prior periods, indicating that it faced underlying challenges.
Comparable sales fell by 1.2%, a stark contrast to the 8% increase seen in the same period last year. This decline suggests that Ulta struggled to attract traffic to both its physical and digital channels. Gross profit also decreased, with margins falling to 38.3%, down from 39.3%. SG&A (selling, general, and administrative) expenses rose to $644.8 million from $600.7 million, driven by higher payroll, benefits, and corporate overhead costs.
Diluted earnings per share (EPS) were $5.30, a decrease from $6.02 the previous year. This decline in profitability was attributed to a combination of falling comparable sales and increasing costs. Furthermore, the company opened 17 new stores in the quarter but faced challenges with existing store performance.
Ulta also repurchased 549,852 shares for a total of $212.3 million in fiscal Q2, leaving $1.6 billion available under its share-repurchase program. Cash and cash equivalents on its books stood at $414.0 million, and merchandise inventories increased by 10.1% year over year to $2.0 billion.
Looking Ahead
For the full year, Ulta revised its net sales outlook to $11 billion to $11.2 billion, down from $11.5 billion to $11.6 billion. Comparable sales expectations were also updated to a range of flat to down 2%, significantly lower than the prior guidance for 2% to 3% growth. The guidance range for operating margin was revised down to 12.7% to 13% from 13.7% to 14% before, and diluted EPS is now expected to be $22.60 to $23.50, down from the previous range of $25.20 to $26.
As Ulta navigates the remainder of its fiscal 2024, investors should closely monitor the company's efforts to enhance its omnichannel strategy, manage costs, and drive growth through exclusive offerings and loyalty programs. These will be critical to its efforts to overcome its current challenges and sustain long-term growth.
