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With relaxation in pandemic-led curbs and vaccinations reaching an increasing number of people, socialization is back in the picture. Rising personal interactions are driving consumers to splurge on beauty products. Well-known cosmetics and skincare player Ulta Beauty, Inc. ULTA has been gaining from higher consumer spending on prestige beauty brands. The company’s skincare business has been particularly doing well. It is witnessing strong growth in its brick-and-mortar channel as consumers flock back to stores. The company’s efforts to boost omni-channel capabilities, improve services and expand product offerings have also been yielding.
Shares of this Zacks Rank #1 (Strong Buy) stock have increased 65% in a year compared with the industry’s rise of 7.9%. That said, let’s take a closer look at the factors supporting the company’s performance.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revival Across Beauty Categories, Strength in Skincare
During second-quarter fiscal 2021, Ulta Beauty witnessed growth in the top- and bottom-line metrics. The robust show was backed by the beauty category revival along with the impact of the company’s prudent investments undertaken in the past year to adapt to the market conditions. Performance was supported by robust growth in the brick-and-mortar channel, with more members returning to stores. The company has been witnessing higher market share in all core prestige beauty categories along with strength in all main categories.
Ulta Beauty’s skincare business has been one of its strongest performing categories. The unit has been benefitting from consumers’ rising interest toward self-care as well as the company’s focus on newness and innovation. During the second quarter, skincare sales saw robust double-digit growth compared with 2019 levels. Category growth continued to be backed by serums, cleansers and moisturizers. Consumers’ focus on self-care and maintaining healthy skincare routines works well for this category. During the second quarter, the company introduced wellness shops in certain stores as well as on ulta.com to keep pace with growing inclination toward self-care.
Apart from these, the company has been seeing strength in the fragrance and hair care category. Ulta Beauty’s services business is seeing momentum and the company intends to re-launch skin services in certain stores during the fiscal third quarter.
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Prudent Omni-Channel Efforts
Ulta Beauty is known for its strategy of striking the right balance between online and physical stores. During second-quarter fiscal 2021, the company’s e-commerce sales more than doubled from 2019 levels. In the quarter, buy online, pick-up in-store or BOPIS penetration remained high and formed 20% of total e-commerce sales. Additionally, the company’s initiatives to boost online promotions and customer engagement have been supporting online sales growth. With consumers’ growing enthusiasm toward online sales, management is on track with expanding capacity at fulfillment centers, expansion of ship from store capabilities as well as curbside pickups. The company is also benefiting from its mobile app and virtual try-on capabilities.
Other Growth Efforts
Ulta Beauty is focused on exploring the potentials of both physical and digital facets. It is carrying out store openings, remodeling and relocations. Management is encouraged about its partnership with Target TGT. The company, on its second-quarter earnings call, stated that Ulta Beauty at Target had launched in 58 stores and online. Ulta Beauty at Target is expected in nearly 100 Target stores by the end of the third quarter.
The company also concentrates on offering customers a curated and exclusive range of beauty products through innovation. It is focused on deepening customer engagement by boosting rewards and loyalty programs. Apart from these, management is committed toward optimizing its cost structure.
Industry experts believe that the upcoming festive season is likely to ramp up the sale of makeup as well as other beauty and skin care products. Ulta Beauty expects its business to continue witnessing growth, as consumers spend more time in social interactions. Management provided an encouraging outlook for fiscal 2021. The company expects net sales in the bracket of $8.1-$8.3 billion, which suggests an increase from $6.15 billion reported in the year-ago period. Comparable sales growth is estimated in the range of 30-32%.
3 Picks You Can’t Miss Out On
Helen of Troy Limited HELE, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8%.
Nu Skin Enterprises, Inc. NUS, also with a Zacks Rank #2, delivered an earnings surprise of 15.7% in the last four quarters, on average.
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