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Ulta Beauty Stock Is a Winner in Good Times and Bad. Why There’s Still Time to Buy.

Demand for beauty products has been off the charts—and strong enough to help Ulta avoid the problems faced by other retailers. Here, a customer shops in an Ulta store.

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Courtesy Ulta

Ulta Beauty
stock was a bright spot in an ugly market in 2022—and its shares still look good in 2023, a remarkable feat when investors have been dumping last year’s winners.

In 2022, investors found a safe place to hide in Ulta stock (ticker: ULTA). Rising inflation squeezed consumers who spent their money on necessities like food and rent instead of on discretionary items like TVs and clothing. But shares of the Illinois-based beauty-products retailer gained 14% last year, even as the S&P 500 index fell 19% and the
SPDR S&P Retail
exchange-traded fund (XRT) tumbled 33%. Beauty products, it seems, are less something people want and more what they need.

This year has seen investors dump safe stocks in favor of riskier fare, but Ulta has continued to outperform the market. Its stock is up 11.6% in 2023, at $523.59, while the S&P 500 index has advanced 7.3%. That speaks to the opportunities ahead for the $26 billion market-cap company. Ulta is no
Peloton Interactive
Yeti Holdings
(YETI), or
Zoom Video Communications
(ZM), which surged during the pandemic only to see sales dry up. Demand for makeup continues, and Ulta offers the widest selection, from high-end to bargain brands, making the stock an attractive option even after its recent run.

It’s hard to overstate how strong Ulta was last year. Sales are expected to have grown by 17% in calendar 2022, while earnings per share are expected to have about quadrupled after a Covid-affected 2020. In its latest earnings report, the company saw cosmetics dominate 44% of its net sales of $2.3 billion, but there was also strength in hair-care products and styling tools, which represent about a fifth of sales.

Ulta also signaled that it expects the good times to continue when it raised its fiscal-year guidance during its third-quarter earnings call in December. Demand for beauty, in other words, has been off the charts—and strong enough to help Ulta avoid the problems faced by other retailers.

“That’s why when you look at a Target, or a Bed Bath & Beyond, which have really struggled with excess inventory and slowing demand and needed to raise promotional activity, Ulta hasn’t really experienced that, just because demand has remained very strong,” says Piper Sandler analyst Korinne Wolfmeyer.

A customer uses GLAMlab, an app that allows customer to virtually try on thousands of beauty products.

Courtesy Ulta Beauty

But after Ulta’s strong run, some observers are concerned about where the stock heads next. Wells Fargo analyst Ike Boruchow, for one, downgraded it to Underweight from Equal Weight on Jan. 6, arguing that its operating margins, which stood at about 16% in 2022, should fall back closer to pre-Covid levels of 12.2%. At the same time, he writes, Ulta got a boost from reopening, a boost that the analyst doesn’t think will last into 2023.

Beauty, however, might be able to sustain its growth. The products get used up, forcing customers to buy new lipstick, eyeliner, and foundation. “Unlike other categories that have benefited from ‘reopening’ postpandemic, beauty velocity is driven by necessary unit replacement and is somewhat protected from a major drop-off in spend,” writes Jefferies analyst Ashley Helgans, who counts Ulta among her top picks.

Nor is Ulta the only beauty retailer showing signs of strength. When
LVMH Moët Hennessy Louis Vuitton
(MC.France) reported fourth-quarter earnings last month, it said that sales had hit $24.6 billion, ahead of analysts’ estimates. On the company’s conference call, CEO Bernard Arnault said that beauty retailer Sephora, which is owned by
and is a competitor of Ulta, “is really firing on all cylinders.” D.A. Davidson analyst Michael Baker writes that Sephora’s performance points to at least an in-line quarter for Ulta.

Ulta carries both more-expensive and more-affordable products, which can help it if customers cut spending in a weaker economy. Here, the skin-care section of an Ulta location.

Courtesy Ulta Beauty

Business seems to be holding up well enough for Ulta to deserve what looks like a premium valuation. The stock, which trades at 21 times next fiscal year’s earnings estimate of $24.11 a share, is more expensive than the S&P 500, which trades at 18 times. But it’s cheaper than its five-year average of 23 times, and it may have advantages over other beauty retailers that make it worth the high price.

Ulta carries both more-expensive and more-affordable makeup, something that gives customers a choice when some may be looking to trade down to lower-cost items, especially if the economy weakens, though Ulta Chief Financial Officer Scott Settersten tells Barron’s that the company hasn’t yet seen consumers doing that. The variety of price points also separates Ulta from Sephora, which peddles high-end cosmetics, and
(WMT) or pharmacies that carry less expensive makeup.

Ulta also has created a reputation of beating and raising expectations. It has topped earnings forecasts for the past 10 quarters, and it has raised its full-year guidance in six of the past seven earnings releases. Ulta won’t report fiscal-fourth-quarter and full-year earnings again until March, when it is expected to report a profit of $5.54 per share on sales of $3 billion. Don’t be surprised if Ulta does it again, something that will help it sustain its premium valuation, says Raymond James analyst Olivia Tong.

“This company has historically been fairly successful at beating and raising expectations, so inherent in that is some premium,” she explains.

It’s a premium worth paying, for a stock that looks this good.

Write to Angela Palumbo at


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