To The Moon

$ulta beauty(ULTA)$

Earning Overview

Ulta reported $8.46 EPS, beating expectations by $1.31—a massive beat. Revenue also topped estimates by $10 million, though year-over-year revenue growth has slowed. Comparable sales increased 1.5%, and while the company posted a double beat for the quarter, its full-year guidance slightly missed expectations.

​Ulta Beauty reported its fourth-quarter fiscal 2024 earnings on March 13, 2025, delivering results that exceeded market expectations. The company's net sales for the quarter were $3.49 billion, a slight decrease of 1.9% from the previous year's $3.56 billion. This decline was primarily due to an extra week of sales in the prior year's quarter, which contributed approximately $181.9 million. When adjusting for this extra week, net sales actually showed an increase, reflecting the company's resilience in a competitive market.

Comparable sales, which include both e-commerce and physical store sales for locations open at least 14 months, rose by 1.5%. This growth was driven by a 3.0% increase in average ticket size, partially offset by a 1.4% decrease in transaction volume.

Fundamental Analysis

For the full fiscal year 2024, Ulta Beauty's net sales grew by 0.8% to $11.3 billion. Comparable sales for the year increased by 0.7%, driven by a 1.1% rise in average ticket size, though transactions saw a slight decrease of 0.4%. Operating income for the year was $1.6 billion, or 13.9% of net sales, down from $1.7 billion, or 15.0% of net sales, in the prior year. Diluted EPS for the full year was $25.34, compared to $26.03 in the previous year.

ooking ahead to fiscal 2025, Ulta Beauty anticipates net sales between $11.5 billion and $11.6 billion, with comparable sales expected to be flat or increase by up to 1%. The company projects an operating margin between 11.7% and 11.8%, and diluted EPS ranging from $22.50 to $22.90. Additionally, Ulta plans to open approximately 60 new stores and execute share repurchases totaling around $900 million.

Following the earnings release, Ulta Beauty's stock experienced a significant uptick. Shares rose by 6.5% in after-hours trading, reflecting investor confidence in the company's performance and strategic direction.

Guidance

Ulta Beauty reported strong Q4 2024 earnings, with EPS of $8.46 beating expectations of $7.13, despite a 1.9% decline in net sales to $3.5 billion. For fiscal year 2025, the company projected net sales between $11.5 billion and $11.6 billion and EPS of $22.50 to $22.90, both slightly below Wall Street forecasts. Despite the cautious outlook, Ulta's CEO expressed confidence in the company’s long-term growth strategy, and shares surged 6.5% in after-hours trading following the report.

Free Cash Flow

Ulta Beauty's cash flow remains strong, with Wall Street analysts estimating free cash flow to rise from $1 billion in 2024 to $1.5 billion by 2029. However, they anticipate a temporary decline to $940 million before rebounding. The company maintains a solid financial position, generating consistent free cash flow, which supports its expansion plans, share buybacks, and operational investments. Looking ahead, projections suggest a 7.4% compounded annual growth in free cash flow from 2029 to 2034, followed by a 5% perpetual growth rate.

Risks and Challenges

Ulta Beauty's leadership acknowledged the challenges posed by a competitive landscape but expressed optimism about the company's strategic investments aimed at fueling future growth. CEO Kecia Steelman emphasized that while these investments will take time to yield results, they are expected to reignite momentum and unlock sustained growth and long-term value for shareholders.

Valuation

Despite earnings declining year-over-year, the company is financially solid, has minimal leverage, and continues to expand. Analysts maintain an average price target of $466, implying a 48% upside from current levels. Even at the low end, analysts forecast some level of growth.

While the company is in a transition phase, possibly investing heavily in international expansion, long-term projections suggest earnings and revenue growth rebounding by 2027, with Ulta trading at just an 11x forward P/E for FY27.

Market sentiment

Market sentiment around Ulta Beauty remains positive despite mixed earnings results. While the company reported a strong earnings beat, its full-year revenue guidance fell slightly below expectations. However, investors seem to view the outlook as conservative, leading to a stock price increase of around 6% post-earnings. Analysts generally maintain a "Buy" or "Hold" rating, with a consensus price target suggesting significant upside potential.

Conclusion

Ulta Beauty's fundamentals remain strong, supported by steady revenue growth, solid profitability, and shareholder-friendly initiatives. The company reported annual revenue of approximately $11.3 billion, with gross margins at 38% and operating margins around 13.85%. Despite a recent compression in margins, Ulta maintains a robust return on equity of 50% and a return on invested capital of 22%, reflecting efficient capital allocation. With a market cap of around $14 billion, a price-to-earnings (P/E) ratio of 12, and an enterprise value-to-free cash flow ratio of 15, the stock appears attractively valued. Ulta also maintains a strong balance sheet, holding $700 million in cash against $1.9 billion in total debt, ensuring financial stability. The company continues expanding, with plans to open 60 new stores while executing $900 million in share buybacks, further enhancing shareholder value.

Ulta Beauty has been experiencing some decline in revenue growth, particularly in the short term. While the company reported a strong earnings beat in its latest quarter, year-over-year revenue growth showed signs of slowing. The company’s revenue growth has decreased, which could be attributed to the maturation of the business, changes in consumer spending, and inflationary pressures. The company's management forecasts that revenue may continue to be flat or slightly decline in the near term, especially as free cash flow dips before recovering in the following years.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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