Ulta and E.l.f. Paint a Pretty Picture on Strong Earnings

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Ulta Beauty is flourishing amid an uneven backdrop for cosmetics retailers.

Gabby Jones/Bloomberg

Whoever mentioned magnificence is barely pores and skin deep wasn’t enthusiastic about current earnings from cosmetics retailers. Robust outcomes from

e.l.f. Beauty

and

Ulta Beauty

present that these companies are thriving amid an in any other case uneven backdrop for the business. Late Thursday, Ulta (ticker: ULTA) delivered a beat-and-raise quarter, a rarity this earnings season. Beyond the headline numbers—consensus-beating earnings per share of $6.30 and income that jumped 21% yr over yr to $2.35 billion—Ulta noticed upbeat same-store gross sales development, a 20% enhance to its best-in-class loyalty program, and a bounce again at its salons. Its steerage painted a vibrant image for the rest of the yr.

Little shock then that the inventory jumped on the report, and is rising greater than 10% on Friday, to $416.77. The information got here after smaller peer e.l.f. (ELF) reported its personal robust earnings on Wednesday afternoon. The firm mentioned it earned 13 cents a share on income that climbed 13% to $105.1 million, coming in comfortably forward of analysts’ expectations. Although its bottom-line forecast was a bit mild, it projected a lot stronger than anticipated gross sales for the total yr. The inventory jumped greater than 11% on Thursday following the report and was up 3.4% on Friday. Anyone who has been watching retail earnings this season is aware of that large strikes after outcomes have been the norm—however sadly extra typically within the different path, as large field shops and mall staples took large tumbles on decrease earnings and diminished steerage. So what’s going on within the magnificence business? There are a number of tailwinds working of their favor. The first and most evident is that individuals in any respect earnings ranges are going out once more—and prepared to spend to make sure they give the impression of being good doing so. “Ulta benefited from sturdy client demand for magnificence together with the cosmetics class rebounding with gross sales above the prepandemic degree,” writes

Cowen

& Co. analyst Oliver Chen. “Both status and mass cosmetics classes accelerated in development, and skincare delivered double-digit proportion comp development.” That’s particularly spectacular, he notes, on condition that these positive factors are on prime of double-digit positive factors within the year-ago interval. Haircare and perfume additionally noticed double-digit comp development “highlighting the resiliency of the wonder class.” That sample was echoed by e.l.f. Its core model is worth oriented, however Chief Financial Officer Mandy Fields informed Barron’s that its higher-price level divisions additionally shone within the quarter. The concept that individuals are taking off their masks and placing on lipsticks isn’t a shock. Yet one other issue working in cosmetics sellers’ favor is that customers look like sticking with the hair and skincare regimes they adopted through the pandemic, relatively than merely swapping out moisturizer for mascara. That was evident in e.l.f.’s and Ulta’s quarters. “We count on energy in U.S. magnificence to proceed, pushed by innovation, robust model assist, and rebounding demand for make-up as frequency of socializing improves, whereas curiosity in skincare, perfume, and haircare continues to maintain its momentum as properly,” notes Raymond James analyst Olivia Tong.   Beauty retailers have one other benefit in that they are usually comparatively robust throughout recessions. Of course, that’s to not say that the U.S. is in a downturn, however whereas uncertainty in regards to the economic system could also be taking a chunk out of different retail shares, cosmetics sellers can have a surprisingly defensive bent. Ulta’s “recession resistant prospects [are] obvious” in Cowen’s proprietary analysis, notes Chen, who expects “magnificence manufacturers and retailers to fare higher in a recessionary setting. Skincare and haircare specifically drive excessive repeat purchases and retention.” Yet magnificence manufacturers aren’t simply passively sitting again and having fun with these exterior updrafts: They’re additionally actively working so as to add freshness to their lineups. Again, each Ulta and e.l.f. benefited from new merchandise of their lineups: e.l.f. CFO Fields highlighted the corporate’s collaboration with Dunkin’ Donuts and its bestselling face primer in her dialogue with Barron’s, whereas Jefferies analyst Stephanie Wissink cited Ulta’s continued innovation as a part of her bullish improve of the shares on Friday. It’s additionally notable that Ulta and e.l.f. did properly exterior of

Target

(TGT), the place customers’ preferences shifted rapidly and damage earnings, exhibiting prospects are nonetheless searching for them out elsewhere. That mentioned,

Estee Lauder

(EL) hasn’t joined the wonder celebration. Although the inventory is rising greater than 5% on Friday, probably boosted by Ulta and e.l.f. earnings and the broader market’s rise, it’s had the toughest yr, falling greater than 31% up to now in 2022. In distinction to this week’s stories,

Estee Lauder

provided blended earnings and lower its full-year forecast earlier this month, citing disruptions by the struggle in Ukraine and restrictions in China. Beyond the outcomes, there are three causes Estee Lauder has trailed. It’s extra dependent on abroad enterprise—particularly in China, the place lockdowns persist for swaths of the inhabitants—in addition to worldwide journey, as customers choose up its items at duty-free outlets and tony purchasing boutiques in main cities. In addition, its dominance in additional status, higher-price merchandise is much less standard with traders who fearful about a downturn in the meanwhile. Still, Ulta and e.l.f. outcomes present that customers are nonetheless prepared to spend selectively. Even individuals prioritizing experiences over issues wish to look good whereas they’re doing them. Write to Teresa Rivas at [email protected]

https://www.barrons.com/articles/4-reasons-behind-strong-earnings-at-ulta-and-e-l-f-they-paint-a-pretty-picture-51653665244

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