Ulta Beauty (ULTA) is a retailer of beauty products in the United States. The company operates in five major product segments.
Cosmetics is the largest segment by revenue. This is followed by Skincare, Bath, and Fragrance, then Haircare Products, then Services, and lastly, Other.
I am bullish on ULTA stock. (See Analysts’ Top Stocks on TipRanks)
Pandemic Effects
The pandemic had multiple effects on Ulta. First, the company closed all of its stores nationwide in March of 2020. They remained closed through May 2020 when they began to strategically reopen. Revenues and profits unsurprisingly struggled.
Between the quarter ending February 1, 2020 and the quarter ending May 2, 2020 revenues fell more than 49%, and earnings-per-share (EPS) fell over 135%.
Sometimes it takes a disaster to compel innovation, though. The pandemic forced Ulta Beauty to accelerate its omnichannel and online sales efforts.
During the course of the pandemic, Ulta doubled its e-commerce business, according to the company’s investor presentation.
Coming Back Stronger
Ulta’s results have come back fully from the pandemic, and are now stronger than ever. Note that Ulta runs on a January 31 fiscal year end. Also, due to the seasonal nature of retail, it is important to compare the same quarters year-over-year.
In the quarter ending May 4, 2019 Ulta made over $1.7 billion in revenue. Due to the pandemic and store closings, this dropped to just $1.2 billion for the same quarter in 2020.
After weathering the storm and increasing omnichannel sales, this figure for the same quarter in 2021 was over $1.9 billion, an 11.7% increase over 2019, and a 58.3% increase over 2020. As we head into the ever-important holiday season, these metrics are positive signs for Ulta Beauty,
Ulta took out $800 million in debt to withstand the pandemic. The company proceeded to not require it, and has paid it back in full. The company is long-term debt free once again.
This is excellent news, as the cash that could be used to repay debt can instead be used to continue to repurchase shares and enhance shareholder value.
Over the trailing 12 months, Ulta has repurchased $685 million in shares under the current $1.6-billion buyback program. Share buybacks help insulate shareholders from downturns in the stock’s price. With the company buying shares, there is a base level of demand in the market.
These metrics all point to positive things in the future for the company’s stockholders.
Target Partnership
Ulta announced in November 2020 that it would be opening stores inside of Target (TGT) locations throughout the country.
The plan calls for 100 stores to begin with. This is an excellent move by Ulta for three major reasons.
First, this will provide beneficial foot traffic as a consequence of the location. Target has already recovered its pre-pandemic foot traffic, and has millions of customers each year flow through its stores.
Some of the traffic will be shared customers, and some will be an opportunity for Ulta to introduce its products to a new audience.
Next, this will allow for Ulta to share in Target’s over 100 million rewards members.
Finally, this is a very synergetic match. Target and Ulta both have customers who enjoy the shopping experience, and both companies take customer service very seriously. They are two standout brick-and-mortar retailers in a sea of e-commerce.
Ulta’s Website Traffic
According to TipRanks’ Website Traffic Tool, quarter-to-date visits to Ulta’s websites are down 14.7% from the same period last year.
This is expected, as many “stay-at-home” orders were in effect at this time in 2020, and have since been lifted.
Wall Street’s Take
Wall Street analysts are somewhat bullish on ULTA stock, with a Moderate Buy consensus rating, based on 14 Buy recommendations, and eight Hold recommendations.
The average Ulta Beauty price target of $445.43 implies 13.6% upside potential.
Summary on Ulta Beauty Stock
Ulta Beauty has positive momentum going into the critical holiday season.
The company survived the pandemic, and renewed its focus on omnichannel business.
Its revenues are back above pre-pandemic levels, and growing along with the bottom-line EPS.
The partnership with Target should provide tailwinds for both companies.
Disclosure: At the time of publication, Bradley Guichard had a position in securities mentioned in this article.
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