Ulta Beauty, Inc. (ULTA) Earnings

Management highlights

Core Business Growth: - Core U.S. business is fundamentally strong with healthy sales growth, and Ulta Beauty gained share in prestige beauty in Q1 while remaining roughly flat in mass beauty. - Stores delivered solid performance supported by successful key promotional and marketing events, with over 40,000 in-store events and brand activations executed during the quarter. - E-commerce maintained strong momentum, driven by omnichannel fulfillment capabilities (BOPIS, buy anywhere fill anywhere) and new convenience options including expanded same-day delivery and new Buy Now, Pay Later functionality. - Launched TikTok Shop focused on Ulta-exclusive brands, with an initial shoppable live stream generating over 5 million impressions and strong GMV, positioning the company to reach younger consumers and drive new guest acquisition. - Expanded the Ulta Beauty Rewards loyalty program to nearly 47 million members (up 4% year-over-year), leveraging first-party data and AI to improve personalization and conversion. - Advanced exclusive brand building, with new exclusive fragrance brand NOYZ ranking among Ulta's top 20 fragrance brands in Q1 following a full 360-degree go-to-market activation. Over 20 new brands launched across categories during the quarter. Scaling New Businesses: - Space NK (U.K./Ireland) continues to deliver healthy balanced growth, expand its customer base, and gain market share. 2 new stores opened in Mexico, and a third flagship store opened at Dubai Mall with long-term expansion planned for the Middle East despite ongoing regional uncertainty. - The Ulta marketplace gained further traction, ending the quarter with over 325 brands and 8,000 SKUs across 7 focus areas, with strong guest satisfaction reported for marketplace purchases. - Expanded wellness assortments across key categories (nutrition/supplements, intimate care, rest/reset), launched new wellness brands, and integrated wellness offerings into major company events, with performance continuing to build. - UB Media (an incremental margin driver) launched a new enhanced YouTube measurement product that delivered higher return on ad spend and conversion for early brand partner Clinique compared to other video channels. Strategic Foundation and Operational Improvements: - Committed to opening a new automated regional distribution center in Salt Lake City, Utah to improve speed, efficiency, and product flow across the supply chain. - Launched Ulta AI, an online guest shopping agent to improve discovery and personalization, and is integrating leading AI platforms (Google Gemini) to enable agentic commerce, with early results showing promise. - Announced plans for a new highly experiential flagship Ulta Beauty location in New York's Times Square, expected to open in late 2027 to showcase next-level brand building and drive global guest awareness.

Guidance

- Full fiscal 2026 net sales growth guidance is maintained at 6% to 7%, with stronger growth expected in the first half of the year driven by Q1 performance and the Space NK acquisition. - Full year comparable sales growth guidance is maintained at 2.5% to 3.5%, resulting in a 2-year stacked comp growth in the high single-digit range that is consistent across remaining quarters, including the tough year-over-year comparison in Q2 2026. - Operating profit growth guidance was increased to 6.5% to 9% for the full year, up from prior guidance, reflecting strong Q1 execution. - Gross margin is expected to be roughly flat for the full year, as inventory productivity gains, continued supply chain efficiency improvements, and modest ongoing shrink reductions offset pressure from elevated fuel costs and targeted competitive assortment investments. - SG&A growth is expected to be in line to slightly below net sales growth for the full year, with low single-digit SG&A growth expected in the second half as prior year Ulta Beauty Unleashed investments anniversary. - Diluted EPS guidance was increased to $28.36 to $28.80 per share, representing 10.6% to 12.3% year-over-year growth, up from the prior guidance range of 9.4% to 11.4% growth. The 2026 stock buyback target was previously increased from $1 billion to $1.5 billion. - Operating margin guidance of flat to up 20 basis points year-over-year is reaffirmed, and the long-term 12% operating margin target remains unchanged.

Segment performance

Total company net sales for Q1 fiscal 2026 increased 11.1% to $3.2 billion, with comparable sales growth of 5.3% (3.7% from average ticket increase, 1.6% from transaction growth). Excluding Space NK, total sales growth was in the high single-digit range. E-commerce delivered mid-teen sales growth, while comp stores delivered low single-digit sales growth. By product category: 1. Fragrance: Delivered high-teen comp growth, increasing revenue contribution from 11% to 12% of total revenue. Growth was driven by newness from luxury brands and exclusive brand innovation. 2. Haircare: Delivered high single-digit comp growth, led by strong performance in prestige haircare, with innovation from exclusive brands outperforming declining hair tool sales. 3. Makeup: Delivered low single-digit comp growth, with growth from prestige makeup offsetting flat mass makeup performance. 4. Skincare and Wellness: Delivered low single-digit comp growth, with strong growth from prestige and mass skincare and wellness supplements partially offset by pressure in body care. 5. Services: Delivered mid-single-digit comp growth, driven by strong member engagement across salon and specialty services. Gross margin increased 100 basis points to 40.1% of sales, driven by lower inventory shrink and higher merchandise margin. SG&A increased 14.6% to $815 million, in line with plans. Operating profit grew 11.6% to $448 million (14.2% of sales). Net income increased 10.8% to $340 million, and diluted EPS grew 15.5% to $7.74 per share.

Risks & headwinds

- Ongoing macroeconomic uncertainty, persistent inflation, and rising fuel prices continue to pressure consumer budgets, increasing the importance of value as a purchase consideration and creating uncertainty around consumer spending trends. - The beauty category remains highly competitive, with growing competition from both traditional mass merchants and online channels increasing pressure to maintain and gain market share. - The geopolitical situation in the Middle East remains fluid, creating near-term uncertainty for the newly opened Dubai Mall flagship store and regional expansion plans.

Analyst Q&A

• Q: Which categories are seeing the strongest return on marketing and SG&A investments, and where is SG&A leverage visible for the back half of 2026?

  A: Management reported the strongest ROI is in fragrance, where in-store fixture upgrades, expanded assortment, and targeted marketing have driven strong results. Investments in 360-degree brand building for exclusive Ulta brands and the UB Media advertising platform are also delivering strong returns. Strong Q1 execution in gross margin (especially shrink reduction) and SG&A discipline gives management confidence to raise the lower end of operating profit guidance, with ongoing supply chain optimization expected to continue driving leverage in the back half, while balancing growth investment and margin discipline to maximize operating profit.

• Q: Is low single-digit April comp growth as good as it gets amid tougher annual comparisons, and will SG&A growth step down in the back half as planned?

  A: Management confirmed Q1 comp trends played out exactly as expected, with low double-digit growth in February (lapping a weak 2025 comp) and low single-digit growth in March/April. The 2.5-3.5% full year comp guidance implies a high single-digit 2-year stacked comp, which management is confident of delivering given Ulta's resilient business model. SG&A growth is on track to step down to low single-digits in the second half as 2025 Ulta Beauty Unleashed investments anniversary, with cost optimization further improving ROI to support profitable growth.

• Q: When will TikTok Shop become material to comp sales, is it included in current traffic figures, and what is its strategic purpose?

  A: Management noted TikTok Shop is still in early phases, currently anchored exclusively to Ulta-only brands and exclusive bundles. It is not expected to cannibalize existing sales, instead acting as a complementary channel focused on new guest acquisition, particularly among younger consumers already active on the platform, and bringing new users into the Ulta loyalty ecosystem. While there is inherent sales opportunity, the primary focus is on marketing and customer acquisition rather than near-term material e-commerce revenue gains.

• Q: Is the current guidance and expected gross margin moderation a sign that Ulta needs to increase promotional spending to hold market share amid rising competition?

  A: Management pushed back on this interpretation, noting the high single-digit 2-year stacked comp guidance for the remainder of the year remains strong and the plan assumes continued market share gains. Beauty has always been a competitive category, but Ulta's differentiated mass-to-luxury assortment, exclusive brand building, and trusted beauty expertise create a unique positioning that cannot be easily matched by competitors. The planned gross margin moderation is just the result of cycling early shrink benefit gains from 2025, not increased promotional spending, and the company is still on track to deliver double-digit earnings growth and increased operating profit guidance.