Ulta Beauty (ULTA -2.73%) gave shareholders some good reasons to cheer its latest earnings report. The beauty products retailer said in its fiscal 2022 first-quarter update that it is still growing sales at a robust pace as people return to more in-person interactions. Ulta's earnings spiked, too, as it handled rising costs.
CEO Dave Kimbell and his team described a positive environment in this part of the retailing world as they raised their 2022 outlook. Let's take a closer look at why Ulta's business is looking so attractive today.
Image source: Getty Images.
Beating expectations
Ulta's first-quarter (which ended April 30) sales rose 21% year over year to trounce Wall Street expectations yet again. That boost was a relief considering the mixed growth news that other retailers, including Walmart and Target, had just reported.
Demand for its beauty and skincare products remained strong despite inflation. Ulta's 18% comparable-store sales spike was powered by a healthy mix of rising customer traffic and increased spending per visit.
Management highlighted its market share wins in a growing industry. "The Ulta Beauty Team delivered exceptional first-quarter results," Kimbell said in a press release.
Ulta didn't have to sacrifice profits to keep those sales levels in record territory, either. Executives said in a conference call with analysts that costs soared on everything from wages to transportation. But Ulta overcame that pressure thanks to its quickly expanding sales footprint.
The company also got a lift from a shift in demand toward more premium makeup products. This push helped lift the operating margin to a record 19% of sales.
ULTA Operating Margin (TTM) data by YCharts
Looking ahead
Inflation has accelerated since the company issued its first official 2022 outlook, and new potential headwinds also include slowing economic growth. Yet Ulta still took the opportunity to hike its sales and profit forecasts.
The retailer now sees comps rising between 6% and 8% compared to the prior range of 3% to 4%. Operating margin should rise above 14% to mark a huge improvement compared to the pre-pandemic level of around 12% of sales.
Management didn't change its target of opening just 50 new stores this year, which implies a slightly conservative approach to the latest sales spike.
But if customer traffic continues booming, then it will soon make sense for Ulta to begin ramping up its store launch plans back toward 100 launches per year, giving it another major growth avenue.
