Ulta Beauty Earnings: 3 Trends to Follow

It’s been a rocky yr for Ulta Beauty (NASDAQ:ULTA). The magnificence merchandise retailer and spa operator posted decrease gross sales for 2020 as site visitors at its shops stayed depressed by way of the primary levels of the pandemic. In the wake of that tough interval, CEO Mary Dillon in March introduced she would step down from that management position in June.
Better days could possibly be forward, although, starting with Ulta’s upcoming fiscal first-quarter earnings report. That announcement, slated for Thursday, May 27, ought to present a pointy rebound in contrast to how the corporate fared throughout the COVID-19 shutdowns a yr earlier.
But buyers have just a few different considerations heading into that working replace. Here are three traits to concentrate to when the corporate reviews earnings.

Image supply: Getty Images.

1. The well being of the make-up trade
For the February-through-April interval, Ulta is probably going to publish a head-turning gross sales progress quantity — most analysts who observe the inventory have forecast a income spike of almost 40% yr over yr to $1.6 billion. Sales had been solely down modestly yr over yr within the prior quarter. But that is nonetheless a low bar to clear, given how far income slumped in 2020’s fiscal first quarter due to widespread retailer closings throughout the early lockdown section of the pandemic within the U.S. Ulta would wish over $1.74 billion in gross sales to publish progress in contrast to its fiscal 2019 Q1 consequence.
The greater query is whether or not the make-up trade continues to be reeling from COVID-19’s influence. Executives had been cautiously optimistic in mid-March {that a} rebound was constructing as clients re-engaged with Ulta’s spa companies and make-up merchandise. “Beauty lovers nonetheless worth the human connection,” incoming CEO Dave Kimbell instructed buyers. We may see some help for that argument in rising buyer site visitors numbers for fiscal Q1. For context, site visitors fell 12% by way of January.
2. Inventory challenges
The silver lining in final quarter’s report was that Ulta managed to slim down its stock of slow-moving merchandise in struggling niches like make-up and hair therapies. Dillon stated success on that entrance gave the chain a robust basis upon which to construct for the fiscal yr forward when the corporate may profit from rising demand for premium merchandise and have much less of a necessity to interact in promotional value slicing.
Positive outcomes on that entrance would present up in Ulta’s working margin, which fell to 10% of gross sales final quarter from 12.5% a yr earlier. (*3*) is predicting a modest profitability rebound in 2021, nevertheless it nonetheless could take just a few years earlier than the corporate’s working margin returns to the 12%-plus ranges shareholders noticed in 2019.
3. A strategic pivot
Ulta’s progress plan has modified dramatically during the last two years. The retailer scrapped its plans to increase into Canada, and it not too long ago adopted a method of placing extra of its emphasis on e-commerce and growing its partnership with Target (NYSE:TGT) slightly than on aggressively including to its personal retailer rely.
That shift may repay for buyers if Ulta can develop its buyer base with out the dangers and bills related to launching extra standalone shops. Yet it is also doable that the retailer is limiting its gross sales potential with a recreation plan that can make it more durable for the chain to capitalize on any demand surge which may hit the make-up trade in late 2021 and past.
Next week’s quarterly report will not settle that query, however buyers ought to be anticipating indicators that Ulta’s new technique is succeeding. If the chain doubles down on initiatives like its digital gross sales channel and the Target partnership, then the enterprise may return to setting income data, maybe as quickly as late 2021. But if it proclaims one other strategic pivot, that may suggest Ulta nonetheless hasn’t discovered an strategy that may ship sustainable gross sales and earnings progress in a tricky retail market.

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