Ulta Beauty Approaches Breakout Point

Ulta Beauty NASDAQ: ULTA is getting prettied up and ready for a post-Covid world. Shares of the cosmetics and beauty products firm gapped up by $17, or 5.18% Friday, closing at $345.36, following stronger-than-expected first-quarter results. 

Earnings per share came in at $4.10, trouncing Wall Street’s expectations of $1.93 per share. The company posted a per-share loss of $1.39 a year ago. 

Revenue of $1.9 billion topped analysts’ expectations of $1.64 billion, and marked a year-over-year gain of 65.2%. You can guess the drivers behind the growth: A combination of government stimulus checks, greater consumer confidence and easing of Covid restrictions nationwide. 

The company opened 28 new stores during the quarter, including one in Herald Square store in New York City. It closed two stores, remodeled three stores and relocated one store.

Ulta announced in March that president Dave Kimbell will be taking the reins as CEO from Mary Dillon, as she becomes executive chair of the company’s board.

In the earnings call, Kimbell outlined steps the company took to stabilize sales, and then grow during the pandemic. 

He said the company optimized its cost structure, and continues to identify operational efficiencies.  

He also elaborated on the drivers of revenue. “For the quarter, comp-store sales increased 65.9%. This outstanding performance was broad-based, with above plan performance across channels, categories, and geographic markets,” he said.

Increasing Consumer Confidence

In addition to stimulus payments contributing to the company’s sales in the quarter, Kimbell cited
“relaxation of restrictions, increasing consumer confidence and a desire for newness are positively impacting consumer spending in the beauty category. Our differentiated model, combined with our efforts to create meaningful guest connections and experiences position us well to attract more guests and lead the category recovery.”

Although digital sales channels were stronger than expected, in-store sales led the way. This could be a harbinger of better news for other retailers who saw diminished foot traffic over the past year. 

“Sales were strong across channels, with stores leading the way as consumers were increasingly comfortable with shopping in stores,” said Kimbell.  “As local restrictions lifted, we increased our operating hours and welcome brand partners back to stores. And as store traffic trends improved, we adjusted staffing levels to support the increased demand. While the hiring market remains challenging, we are pleased with our ability to hire and staff our stores.”

The mention of hiring challenges echoes a concern voiced by other companies reporting recently. 

Buy Online, Pick Up In-Store

In another development that may have wider implications for retailers, Kimbell cited strength of the “buy online pick up in-store” trend, known as BOPIS in the industry. 

“This quarter, we continue to test ways to incentivize guests to use buy online, pick up in-store with new BOPIS-only promotions. Importantly, we drove above-trend BOPIS penetration while also continuing to drive growth through our store and ship-to-home channels,” Kimbell said. He noted that BOPIS increased to about 16% of total e-commerce sales in the quarter, up from 4% in the first quarter a year ago. 

With Friday’s price action, Ulta shares rallied as high as $351.72, $0.72 higher than previous resistance at $351, reached on March 11. It hit resistance just below $351 on March 9, so there’s clearly a ceiling beyond which investors are not yet convinced.

In a sign of optimism, volume was 273% higher than normal on Friday. 

At this juncture, watch for the stock to clear that hurdle above $351 with decisive price gains, ideally accompanied by healthy trading volume and minimal intraday price retracements.

The stock is poised to clear a consolidation that began in mid-March. At this point, much depends on the broader market, which has been choppy recently.

Ulta is a component of the S&P 500, although it comprises only 0.052% of the index. Nonetheless, it makes the comparison at least somewhat relevant. The broader index finished the week 1.16% higher.