Ulta Beauty’s (ULTA) core business of selling makeup may still be under pressure as people wear masks during the pandemic, but other categories have really started to perk up.
Credit strong demand for face creams and various serums to folks sprucing themselves up for video chat calls and investing in facial care while stuck at home.
“We’re seeing very strong demand signals for beauty at Ulta Beauty in categories like skin care, which has been very trendy for a while. It has really taken off during the pandemic where more people are experimenting with skin care routines and rituals. It’s a wonderful form of self-care,” Ulta Beauty CEO Mary Dillon told Yahoo Finance Live in the wake of better than expected third quarter earnings results Thursday night.
Dillon has driven a nearly 200% gain in Ulta’s stock since taking over the company in 2013 by aggressively opening new stores and expanding the merchandise assortment. She added, “Skin care is a very important category, strong results. Also things like fragrance and bath, again a category of self-care, double-digit comp [sales in the third quarter].”
The momentum in personal care categories helped to offset more challenging results in cosmetics in the third quarter. Even still, Ulta saw third quarter same-store sales fall 8.9% as consumers spent cautiously on makeup and in-store salon services. Transactions in the quarter fell 15.4% from a year go, while the average ticket rose 7.6%. Online sales gained 90%.
Here’s how Ulta Beauty performed in the third quarter versus Wall Street estimates.
Net Sales: $1.55 billion vs. $1.56 billion
Gross Margin: 35.1% vs. 33.6%
Diluted EPS: $1.64 vs. $1.48
Ulta shares fell slightly Friday on the results. By and large, the Street appears to be sticking with Ulta despite the challenges being seen in retail right now. That could be attributed to a few things.
First, Ulta’s sales in November are off to a good start.
“We feel encouraged with what we have seen so far,” Dillon said of November-to-date trends.
Secondarily, Ulta will have a solid tailwind at its back in 2021 as it opens scores of stores inside Target via a new deal between the two retail heavyweights. The partnership will increase visibility for the Ulta brand and drive revenue (and probably more loyalty members).
While the near-term outlook for Ulta is not without risk as states push through new mobility restrictions during the pandemic, by mid-2021 the retailer’s earnings could look rather different than they do today. Once vaccinated, consumers could be out in force stocking back up on cosmetics and personal care products as they venture back out. Ulta will be there to accept their saved up dollars.
What’s hot from Sozzi:
Watch Yahoo Finance’s live programming on Verizon FIOS channel 604, Apple TV, Amazon Fire TV, Roku, Samsung TV, Pluto TV, and YouTube. Online catch Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, and reddit.