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Ulta (ULTA) Down 7.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Ulta Beauty (ULTA). Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ulta due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ulta Beauty Q4 Earnings Top Estimates, Sales Down Y/Y

Ulta Beauty posted fourth-quarter fiscal 2020 results, wherein the top and the bottom line beat the Zacks Consensus Estimate. However both metrics declined year over year. Management highlighted that the company’s performance continues to be adversely impacted by the COVID-19 pandemic.

While store traffic continues to remain challenged, the company’s digital channel has been witnessing growth. The company plans to continue investing toward boosting omni-channel capabilities. In this context, it is particularly excited regarding its partnership with Target Corporation. Apart from these, management is on track with business investments to drive market share, including boosting assortments. It is also on track with efforts to restructure costs.

Quarterly Numbers

Ulta Beauty posted adjusted earnings per share (EPS) of $3.41 compared with $3.83 reported in the year-ago quarter. Nevertheless, the bottom line surpassed the Zacks Consensus Estimate of $2.27 per share.

Net sales of this beauty retailer fell 4.6% year over year to $2,198.7 million. The Zacks Consensus Estimate stood at $2,066 million. Comparable sales or comps fell 4.8% against 4% growth recorded in the prior-year quarter. Comps takes into account stores that were open for at least 14 months, including stores temporarily closed due to the pandemic as well as e-commerce sales. During the quarter under review, the company registered decline in transactions of 12.2%, partly made up by a rise of 8.3% in average ticket.

Gross profit dropped 4.4% to $771 million. Gross margin rose 10 basis points (bps) to 35.1% owing to improved merchandise margins driven by lower promotional activity and merchandising strategies.  These were partially offset by channel mix shifts and deleverage in fixed costs due to lower sales.

SG&A expenses fell 0.3% to $514.1 million. SG&A expenses (as a percentage of sales) increased 100 bps to 23.4% due to increased marketing expenses, higher corporate expenses, personal-protective equipment, COVID-related expenses and the deleverage of variable store expenses due to lower sales.

Operating income fell from $287.8 million to $224.3 million. Operating margin contracted from 12.5% to 10.2% in the quarter. Adjusted operating income declined 11.5% to reach $254.7 million. Adjusted operating income margin was 11.6%.

Other Updates

Ulta Beauty ended the quarter with cash and cash equivalents of $1,046 million. Net merchandise inventories came in at $1,168.2 million. Average inventory per store fell 10.4% year over year. Stockholders’ equity at the end of the quarter stood at $1,999.5 million.

Net cash provided by operating activities was $810.4 million for fiscal 2020.

Additionally, the company repurchased shares worth $41.9 million during the fourth quarter. During fiscal 2020, the company repurchased 474,794 shares for $114.9 million. As of Jan 30, 2021, the company had $1.5 billion worth shares remaining under its $1.6 billion buyback program announced last year.

Ulta Beauty’s capital expenditures amounted to $152 million in during fiscal 2020. For fiscal 2021, capital expenditures are expected in the bracket of $200-$250 million.

During the fourth quarter, the company opened two new stores, thereby ending fiscal 2020 with 1,264 stores. In fiscal 2021, the company plans to open approximately 40 stores along with carrying out 21 store remodels and relocation projects.


With COVID-19 vaccines being rolled out, management expects its business to gradually strengthen in fiscal 2021. However, a significant portion of the year is likely to continue being adversely impacted by masking requirements as well as social distancing.

That said, the company expects revenues in the range of $7.2-$7.3 billion in fiscal 2021, which suggests an increase from $6.2 billion reported in fiscal 2020. Additionally, comps growth is expected in the range of 15-17%. Further, management expects operating margin to be around 9% of sales. Growth in operating margin is likely to be driven by expansion in gross margin. Earnings are expected in the range of $8.85-$9.30 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -22.66% due to these changes.

VGM Scores

At this time, Ulta has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ulta has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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