What happened

Shares of Ulta Beauty (NASDAQ:ULTA) were looking attractive today after the salon and cosmetics chain delivered a better-than-expected third-quarter earnings report last night. After the stock had plunged following its August earnings report, today's update helped to reassure investors that the growth story is still intact.

As of 11:57 a.m. EST, the stock was up 13%.

Customers at an Ulta Beauty store.

Image source: Ulta Beauty.

So what

Ulta said comparable sales rose 3.2%, driving overall revenue growth of 7.9% to $1.68 billion, which was slightly below estimates at $1.69 billion.

Gross margin ticked up 40 basis points to 37.1% as merchandise margins rose, and it gained leverage from the comparable sales increase. However, sales, general, and administrative expenses increased from 25.3% to 26.7% as the company stepped up investments in labor and growth initiatives. As a result, operating income and net income both fell slightly, but due to share buybacks, earnings per share rose from $2.18 to $2.25, beating estimates at $2.13.

CEO Mary Dillon called the performance "solid" and added, "We continue to gain market share across all major beauty categories, and we are extending our leadership position by creating stronger connections with our guests and engaging with them in better and more exciting ways."

Now what

Looking ahead, the beauty chain raised its full-year earnings guidance slightly, calling for EPS of $11.93 to $12.03, up from a previous range of $11.86 to $12.06. At the same time, the company dialed down its sales guidance slightly, calling for comparable sales growth of 4.7% to 5%, down from prior guidance at 4% to 6%.

Investors reset their growth expectations after the company slashed guidance and cited headwinds in the market in its second-quarter report. However, over the long term, Ulta still looks primed to outperform, because the stock is affordably priced and it should be able to take advantage of retail vacancies and the Instagram-driven boom in the beauty sector.

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