Ulta Beauty (ULTA -0.10%) is on a much stronger growth track today than it was just six months ago. Management on Thursday lifted its 2021 outlook for a third consecutive time in 2021. The makeup and beauty products retailer is now expecting well over $1 billion above the original full-year sales target issued at the start of the year.
Ulta Beauty is also targeting far higher earnings thanks to improving profitability in today's free-spending shopping environment.
Let's dive right in and take a look at three big takeaways from the third-quarter earnings report.
Image source: Getty Images.
1. The acceleration continues
The prior quarter's results set the stage for good news this week, as Ulta announced surprisingly strong sales growth. Consumers were racing back into the makeup industry in Q2, after all.
Yet revenue trends still trounced expectations. Ulta boosted sales by 29% to $2 billion. That result was 19% higher than the same period in 2019, too, before the pandemic struck.
The company benefited from an ideal balance between higher prices and increased volume. Shopper traffic was up 17% year over year, and average spending rose 8%. Those gains were complemented by a growing store base: The chain added six new locations. "[W]e delivered record sales and earnings," CEO Dave Kimbell said in a press release, "increased our market share, and expanded our ... loyalty program to nearly 36 million members."
2. Supply chain wins
The company noted no major struggles around the supply chain. Inventory rose steadily but remained relatively low, consistent with management's new efficiency initiatives. Gross profit landed at 39% of sales and operating margin was 14%, well above management's 13% annual target.
Executives said in a conference call with Wall Street analysts that the profitability uptick was mainly thanks to the increasing sales footprint, plus shoppers' tendency to purchase higher-priced hair care, skin care, and makeup products. Earnings roughly tripled to $3.94 per share, trouncing expectations.
3. Looking ahead
Ulta Beauty issued another head-turning upgrade to its full-year outlook. Sales are now on track to reach between $8.5 billion and $8.6 billion this year compared to the prior forecast of $8.1 billion to $8.3 billion. Just six months ago, that annual forecast was sitting at $7.2 billion to $7.3 billion, but the accelerating industry rebound caught executives by surprise.
Investors saw even better news on the earnings front, where profit is slated to land as high as $17.10 per share, up from less than $10 per share in management's initial 2021 outlook.
That improving outlook helps explain why Ulta Beauty's stock is beating the market's rally so far this year. It also implies the company has room to start speeding up its store growth plans again after having spent several years focusing more on efficiency.
Combining a faster store expansion with that lower cost profile should mean stronger returns for investors willing to hold this growth stock in 2022 and beyond.
