Ulta forecasts strong holiday sales, fueled by e-commerce boom

Dive Brief:

Ulta Beauty beat analyst expectations for its third quarter and raised guidance as it continued to increase sales both in stores and online.
The beauty retailer's Q3 net sales rose 24.2% to $1.13 billion from $910.7 million, beating FactSet analyst expectations for $1.11 billion. Q3 earnings were $1.40 per share, up from $1.11 in the same period last year and beating FactSet expectations for $1.37 per share.
Ulta's Q3 same-store sales plus e-commerce rose 16.7%, up from an increase of 12.8% in the same quarter in fiscal 2015, driven by 11.1% growth in transactions and 5.6% growth in average ticket. E-commerce sales alone grew 59.1% to $73.6 million, up strongly from $46.2 million in the third quarter of fiscal 2015.

Dive Insight:

Ulta shares slipped in August despite beating expectations in its second quarter as investors sought to correct the company's whopping 77% share price surge over the previous 12 months. But the beauty retailer appears unstoppable — retail same-store sales increased 14.3% in Q3 (including salon same-store sales growth of 10.3%) and overall salon sales rose 16.7% to $60.4 million, up from $51.7 million in the third quarter of fiscal 2015 — and shares increased than 6% after the bell Thursday.

For Q4, Ulta said it expects earnings of between $2.08 and $2.13 per share on revenue of between $1.52 billion and $1.54 billion, edging past analysts estimates for $2.05 per share on revenue of $1.51 billion. The company is benefiting from the overall strength in the beauty segment, but it’s also doing many of the right things, including bringing younger consumers into the fold through its marketing and social media efforts, investing in stores as well as in e-commerce, and leveraging its salons to compete with e-commerce rivals, according to Conlumino retail analyst Carter Harrison.

Ulta also is benefiting from the downfall of department stores, which were once the go-to retailers for beauty consumers, Harrison adds. “Not all of these lost souls are finding their way to Ulta, but many are, and this is providing a nice boost to growth," he said in an email to Retail Dive. "We believe that this benefit will likely continue over the course of the next fiscal year ... While the rising tide of beauty is floating all boats, Ulta is growing far faster than the market, which highlights the fact it is taking share.”

While beauty is a staple during the holiday period, Conlumino says the category is emerging as “high on the gifting agenda this year.” Ulta is in prime position to capitalize on the trend, Harrison notes: “That said, while comparable growth will remain in double digits, it may come down slightly as the company comes up against a strong performance from the prior year.”