New stores help drive strong Ulta Beauty results in Q2

Ulta Beauty saw profits and sales rise in a strong second quarter.

Net income increased 1% to $300.1 million in the quarter ended July 29, compared to $295.7 million in the second quarter of fiscal 2022. Diluted earnings per share increased 5.6% to $6.02 compared to $5.70, including a $0.01 benefit due to income tax accounting for stock-based compensation.

Net sales increased 10% to $2.5 billion from $2.3 billion in the prior year quarter, which the beauty retailer said was primarily due to increased comparable sales, strong new store performance and growth in other revenue. 

Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 8% compared to an increase of 14.4% in the second quarter of fiscal 2022, driven by a 9% increase in transactions and a 1% decrease in average ticket. Skin care remained one of the company's best performing categories, with prestige and mass components delivering double-digit growth. 

“The Ulta Beauty team delivered another quarter of strong performance, with sales, gross profit, and SG&A expenses all better than our internal expectations," said Dave Kimbell, CEO, Ulta Beauty. "During the quarter, we drove growth across all major categories, increased the number of loyalty members, and strengthened engagement with the Ulta Beauty brand."

Echoing other retailers' recent comments, Ulta executives noted during the earnings call that shrink increased during the quarter. As previously reported, the retailer is is on track to have locked fragrance cabinets in 70% of its stores by year-end. 

Real estate activity in the second quarter included three new stores, with locations in Crestview, Fla.; Lebanon, Tenn.; and Lynchburg, Va. In addition, the company relocated two stores and remodeled three stores.

[Read more: Ulta completes recapture of Sears space at a Massachusetts mall]

During the first six months of fiscal 2023, Ulta Beauty opened eight new stores, relocated three stores, remodeled five stores and closed one store. At the end of the second quarter, the company operated 1,362 stores totaling 14.3 million square feet. For the full fiscal year, Ulta Beauty expects to open 25 to 30 new net stores and remodel or relocate 20 to 30 stores.

Kimbell noted that the beauty category has continued to deliver healthy growth, as consumers maintain their post-pandemic routines and expand their definition of beauty.

"Our proven business model, diverse assortment, best-in-class loyalty program, and outstanding teams have enabled us to deliver stronger-than expected results for the first half of fiscal 2023, and I remain confident we can deliver against our updated expectations for the rest of the year," he said.

Ulta Beauty raised its guidance for fiscal 2023. The company now expects net sales of $11.05 to $11.15 billion (up from $11 to $11.1 billion) and comparable sales growth of 4.5% to 5.5% (up from 4% to 5%).