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Ulta Beauty, Inc. (NASDAQ: ULTA) reported its financial results for the first quarter of fiscal 2024, which ended on May 4, 2024, after market close yesterday.
The beauty retailer achieved net sales of $2.7 billion, up from $2.6 billion in the same period last year. This 3.5% increase in net sales was driven primarily by a 1.6% rise in comparable sales, contributions from new store openings, and growth in other revenue streams.
Despite the challenging operating environment, Ulta Beauty’s CEO, Dave Kimbell, praised the team’s execution and adaptability, highlighting their commitment to delivering a best-in-class assortment and engaging customer experiences.
Gross profit for the quarter increased by 1.4% to $1.07 billion, though it declined as a percentage of net sales from 40.0% to 39.2%. This dip was attributed to lower merchandise margins and higher inventory shrink, partially offset by other revenue growth.
Selling, general, and administrative (SG&A) expenses increased 8.8% to $665.9 million, representing 24.4% of net sales, up from 23.2% in the previous year. The rise in SG&A expenses was primarily due to higher corporate overhead for strategic investments, increased store payroll and benefits, and higher store expenses.
Operating income for the quarter was $400.9 million, or 14.7% of net sales, compared to $442.1 million, or 16.8% of net sales, in the same period last year. Net income for the first quarter was $313.1 million, down from $347.1 million in the previous year.
Diluted earnings per share (EPS) were $6.47, including a $0.10 benefit from income tax accounting for stock-based compensation, compared to $6.88, including a $0.14 benefit from the same accounting method last year.
Ulta Beauty Beats EPS Expectations by $3.77 in Q1
The results were mixed when comparing Ulta Beauty’s first-quarter performance to market expectations. Analysts had projected an EPS of $2.70, whereas Ulta Beauty reported a significantly higher EPS of $6.47.
However, it’s important to note that this figure includes a $0.10 benefit from income tax accounting for stock-based compensation. Despite this, the reported EPS exceeded expectations by a large margin, showcasing the company’s strong profitability.
On the revenue front, Ulta Beauty’s net sales of $2.7 billion were slightly below the anticipated $2.73 billion. This shortfall can be attributed to various factors, including a modest 1.6% increase in comparable sales, lower than the 9.3% growth in the first quarter of fiscal 2023.
The company faced challenges such as lower merchandise margins and higher inventory shrink, which impacted overall revenue growth.
Despite these challenges, Ulta Beauty’s ability to deliver strong EPS and maintain a healthy gross profit margin demonstrates its resilience and efficient cost management. The company’s focus on strategic investments and expense management has helped mitigate some of the pressures from the dynamic operating environment.
However, the increase in SG&A expenses and the decline in operating income as a percentage of net sales indicate areas where the company may need to focus on improving efficiency
Ulta Beauty Ups Guidance for Fiscal 2024, Expects Net Sales Between $11.5 Billion and $11.6 Billion
Ulta Beauty has updated its guidance for fiscal 2024, reflecting the anticipated continuation of the dynamics faced in the first quarter. The company now expects net sales to be in the range of $11.5 billion to $11.6 billion, down from the previously projected $11.7 billion to $11.8 billion. Comparable sales growth is also expected to be lower, revised to 2% to 3% from the initial 4% to 5%.
The company has maintained its plans for new store openings, remodels, and relocations, with no changes to the previously announced targets.
Operating margin guidance has been adjusted to a range of 13.7% to 14.0%, down from the earlier estimate of 14.0% to 14.3%. Additionally, diluted EPS for the full fiscal year is now expected to be between $25.20 and $26.00, compared to the previous guidance of $26.20 to $27.00.
Ulta Beauty also provided updates on other financial metrics. The company projects interest income of approximately $13 million, an increase from the prior estimate of $11 million. The effective tax rate is expected to be around 24%, slightly lower than the previous estimate of 24.3%.
Capital expenditures are projected to remain unchanged at $415 million to $490 million, while depreciation and amortization expenses are expected to be between $270 million and $275 million, slightly lower than the previous estimate of $275 million to $280 million.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
About the author
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
