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Why Ulta Beauty Stock Rose 20% in August

By Demitri Kalogeropoulos – Sep 3, 2020 at 9:36AM

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Investors celebrated improving growth results, but the retailer still sees tough times ahead.

What happened

Ulta Beauty (ULTA -0.25%) shares outpaced a booming market in August, rising 20% compared to the S&P 500's 7% increase, according to data provided by S&P Global Market Intelligence.

That rally put the stock closer positive territory in 2020, but shares remain lower by 8% while the broader market is up 9%.

A woman applies makeup.

Image source: Getty Images.

So what

August's jump was powered by rising investor optimism in a building rebound for the retailing industry. The beauty products giant added to that enthusiasm by showing solid improvements in its sales and earnings trajectory. Executives revealed on Aug. 27 that sales declines improved to 26% in the second quarter compared to 33% in in the first quarter. Ulta just barely managed overall profitability, too, with operating margin landing at 1% of sales.

Now what

Those results support the conclusion that the chain will make big strides toward erasing the operating losses it booked during maximum social distancing efforts in the fiscal first quarter. Yet it could be several quarters before consumers are back to spending freely on makeup products or salon services. As a result, Ulta is focused on cutting costs and slowing its expansion rate into early 2021.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ulta Beauty. The Motley Fool has a disclosure policy.

Stocks Mentioned

Ulta Beauty Stock Quote
Ulta Beauty
$471.33 (-0.25%) $-1.20

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