Ulta Beauty, Inc. (ULTA) Q3 2026 Earnings Call Transcript

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Overview

The earnings call reveals mixed signals: strong sales growth and optimistic innovation plans are offset by rising SG&A costs and flat margins. The Q&A section highlights management confidence but lacks specific guidance details, especially regarding SG&A and holiday expectations. The neutral rating reflects the balance between positive sales momentum and cost concerns, with no clear market cap information to gauge reaction intensity.

Key Financial Performance

Net Sales Net sales increased 12.9% to $2.9 billion year-over-year. This growth was attributed to the expanding relevance of the Ulta Beauty brand, favorable investments supporting long-term strategy, and strong team commitment.

Operating Profit Operating profit was 10.8% of sales, compared to 12.6% last year. The decline was due to higher SG&A expenses, including incentive compensation and investments in technology and store operations.

Diluted EPS Diluted EPS was $5.14 per share, flat compared to last year. This was influenced by higher SG&A expenses and investments, offset by strong sales growth and improved merchandise margin.

Comparable Sales Comparable sales increased 6.3%, driven by a 3.8% increase in average ticket and a 2.4% increase in transactions. Growth was consistent across all periods, with both store and digital channels contributing.

E-commerce Sales E-commerce sales increased in the mid-teen range year-over-year, driven by enhanced digital engagement and personalization efforts.

Gross Margin Gross margin increased 70 basis points to 40.4% of sales, compared to 39.7% last year. This improvement was due to lower inventory shrink, higher merchandise margin, and more effective promotion strategies.

SG&A Expenses SG&A expenses increased 23.3% to $841 million, primarily due to higher incentive compensation, Space NK acquisition impact, and investments in the Ulta Beauty Unleash Strategy. As a percentage of sales, SG&A increased to 29.4% from 27% last year.

Inventory Inventory increased 16% to $2.7 billion, reflecting new brand launches, Space NK acquisition, and the impact of 63 net new Ulta Beauty stores.

Capital Expenditures Capital expenditures were $87 million, driven by investments in new and existing stores and IT systems.

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Operating Highlights

Fragrance: Sustained double-digit comp sales growth driven by luxury brands like Valentino and Dolce & Gabbana, and new launches from Miu Miu and Squishmallows.

Skincare: High single-digit comp growth led by Prestige skincare brands like Fenty Skin Body, Tatcha, and Dermalogica, as well as Mass skincare brands like BIOMA and Starface.

Makeup: Mid-single-digit comp growth supported by brands like NYX, Morphe, L'Oreal, Estée Lauder, and MAC.

Haircare: Mid-single-digit comp growth driven by Prestige hair brands like Moroccanoil and Nutrafol, and exclusive brand Cécred.

Services: Mid-single-digit comp growth driven by cut and color services, expanded brow services, and stylist productivity.

International Expansion: Opened 7 stores in Mexico and 1 in the Middle East (Kuwait). Positive guest response with notable grand openings featuring celebrities like Shakira and Bella Hadid.

UB Marketplace: Launched with over 120 brands and 3,500 SKUs, expanding online assortment with minimal inventory risk.

Digital Engagement: App engagement accounted for 65% of online member sales, with new features like Replenish & Save and Wishlist.

Supply Chain: Completed retrofit of Dallas distribution center with advanced automation and robotics, enhancing inventory flow and capacity.

Marketing Campaigns: Launched 'Beauty Happens Here' campaign to drive awareness and engagement.

Leadership: Appointed Chris DelOrefice as CFO to strengthen leadership team.

Cultural Reenergization: Focused on reenergizing company culture through team engagement and visits.

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Risk or Challenges

Consumer Confidence: Softening in overall consumer confidence in Q3 could impact consumer spending, particularly during the holiday season. Beauty consumers' budgets are tight, and they are focused on value, which may limit discretionary spending.

SG&A Expenses: Higher SG&A expenses, including increased incentive compensation, store payroll, and benefit expenses, could pressure operating margins. Elevated expenses related to technology investments and cloud-based arrangements are also contributing to cost increases.

Shrinkage: Although shrinkage has improved, it remains a risk factor that could impact profitability if not managed effectively.

Tariff-Related Price Increases: Sales declines in personal styling tools are attributed to pressures from tariff-related price increases, which could continue to affect this category.

Macroeconomic Environment: The challenging macroeconomic environment, including inflationary pressures and tight consumer budgets, could impact overall sales and profitability.

International Expansion: While international expansion efforts in Mexico and the Middle East show promise, they carry risks such as operational challenges, cultural differences, and market acceptance.

Technology Investments: Investments in technology and cloud-based systems are driving near-term expense pressure, which could impact profitability if not offset by long-term revenue growth.

Category Mix: Unfavorable category mix, particularly the decline in personal styling tools, could impact overall merchandise margin.

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Guidance & Outlook

Revenue Expectations: Net sales for fiscal 2025 are expected to be approximately $12.3 billion, with comparable sales growth between 4.4% and 4.7%.

Operating Margin: Operating margin for fiscal 2025 is projected to be between 12.3% and 12.4% of net sales, with SG&A being the primary driver of deleverage.

Earnings Per Share (EPS): Diluted EPS for fiscal 2025 is expected to range between $25.20 and $25.50.

Fourth Quarter Projections: For Q4, comparable sales growth is expected to be between 2.5% and 3.5%, with operating margin between 12% and 12.3%. EPS for the quarter is projected to be between $7.61 and $7.90.

Holiday Season Outlook: The company anticipates strong holiday performance, with a focus on value, holiday limited editions, and early gift set drops. However, it remains cautious about consumer spending due to the challenging macroeconomic environment.

International Expansion: Ulta Beauty is expanding internationally, with new stores opened in Mexico and the Middle East. The company plans to continue growing its presence in these markets over time.

Marketplace Initiative: The UB Marketplace was launched in Q3, adding over 120 brands and 3,500 SKUs to the online assortment. This initiative is expected to strengthen category authority and attract new guests.

Wellness Category Growth: Ulta Beauty is expanding its wellness category with new brands and elevated fixtures in stores, aiming to capitalize on the growing wellness market.

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Shareholder Return Plan

Share Buyback Program: In the quarter, we repurchased 427,000 shares, bringing the year-to-date total for our share buyback program to 1.7 million shares or $693 million. At the end of the quarter, we had $2 billion remaining under our current $3 billion repurchase authorization.

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Key Q&A

Q:Can you talk about what you're hearing from brands about pricing? The 3.8% ticket comp was very impressive. Do you think this might build in the coming quarters?

A:Management noted that pricing increases are generally seen quarter-to-quarter as brands implement them. Specific brands like e.l.f., Coty, and Helen of Troy were mentioned as having price increases this quarter. They emphasized that price increases are not new and are being implemented thoughtfully considering consumer wallet pressures. There is a short-term benefit to cost of goods, but this balances out as older products are sold and replaced with newer ones.

Q:Can you give more color around app engagement and online sales penetration? Are consumers migrating to purchasing across channels?

A:Management highlighted strong app engagement, which grew to 65% from 63% last quarter. They noted that 80% of their business still comes from stores, but e-commerce has shown three consecutive quarters of double-digit growth. New capabilities like Split Card, Replenish & Save, Wishlist, and Venmo have been introduced to enhance the digital experience. Investments in personalization and digital acceleration are driving growth across both channels.

Q:How much of the comp performance on a 2-year stack basis is due to product newness, better execution in-store, or better promotions?

A:Management attributed the performance to a combination of factors, including strong merchandising (especially gifting and fragrance), digital capabilities, marketing campaigns, and operational excellence. They emphasized that the company is executing well across all areas, supported by a clear plan and strong teamwork.

Q:How much of the SG&A growth was due to the incremental brand campaign during the quarter? Should we expect SG&A to be managed closer to sales in 2026?

A:Management explained that SG&A growth was primarily due to higher incentive compensation, store payroll, and benefit expenses, as well as amortization of cloud-based software. Advertising expenses were leveraged due to higher top-line revenue. They plan to share more details about SG&A in March but emphasized that 2025 is an investment year and 2026 will not be another heavy investment year.

Q:How do you feel about the innovation pipeline and exclusive brands for next year?

A:Management expressed confidence in the innovation pipeline for 2026, noting that the merchandising team has been working hard to develop plans. They emphasized the importance of newness and innovation in driving the business and stated that the pipeline is balanced across the portfolio.

Q:What is your philosophy around the long-term EBIT margin of 12%? Should we still anchor to this as we think about 2026?

A:Management stated that while they are outperforming the original plan, it is premature to change long-term growth targets. They do not expect EBIT margins to deteriorate from 2025 levels and are focused on building a plan that supports long-term growth and market share gains.

Q:Are you finding that some of the momentum is starting to fade where consumers are shopping more around events?

A:Management reported consistent comp growth across all periods and strong performance during Black Friday and Cyber Monday. They emphasized that beauty remains an important category and that they are confident in their plans and momentum.

Q:Can you quantify the shrink benefits seen this year? Are there more tailwinds to this?

A:Management noted modest improvements in shrink during Q3 and expect further modest improvements in Q4. They anticipate full-year 2025 shrink to be lower than 2024 and believe there is still some opportunity to reduce shrink further.

Q:How do you see the competitive situation today versus earlier in the year?

A:Management acknowledged that beauty is a competitive category but emphasized their differentiation through loyalty programs, a wide product range, experiential shopping, and strong e-commerce performance. They believe they are uniquely positioned to continue winning and taking market share.

Q:What are you seeing in prestige and mass categories? Is there a difference?

A:Management reported mid-single-digit growth in both prestige and mass categories, with share gains in prestige driven by skin and fragrance, and in mass driven by makeup. They are confident in their plans to sustain market share improvements.

Q:What is the status of the Space NK initiative?

A:Management described Space NK as being in the early stages but highlighted its agility and clienteling capabilities. They aim to protect what makes Space NK unique while leveraging operational efficiencies. They see potential for mutual learning and growth.

Q:Can you explain the SG&A growth and its impact on margins?

A:Management attributed SG&A growth to higher incentive compensation, store payroll, and benefit expenses, as well as amortization of cloud-based software. They expect gross margin to remain flat for the year, with some leverage in supply chain costs in Q4.

Q:What is your perspective on the Target store count and its pace?

A:Management reaffirmed their long-term target of 1,800 stores and expressed confidence in this plan.

Q:What are your expectations for pricing and tariff impacts going forward?

A:Management expects modest price increases in Q4 and noted that it takes 1-2 quarters for tariff impacts to fully flow through the income statement.

Q:How do you view the role of newness and internal improvements in driving growth?

A:Management emphasized the importance of newness and innovation, noting that the pipeline for 2026 looks strong. They also highlighted the benefits of recent investments in technology and operations, which they expect to continue driving growth.

Q:What are your expectations for the holiday season and long-term growth?

A:Management expressed confidence in their holiday plans and momentum, noting strong fundamentals and a focus on execution. They plan to share more details about long-term growth in March.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details about the SG&A growth breakdown, the exact contribution of Space NK to sales, and the precise impact of pricing and tariff changes on margins. They also did not provide a clear answer on quarter-to-date performance or specific expectations for the holiday season beyond general confidence in their plans.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

ULTA Transcript

Ulta Beauty, Inc. (ULTA) Q3 2025 Earnings Call Transcript

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The earnings call summary presents a mixed sentiment. Financial performance is strong, with increased guidance and revenue growth, but operating profit is expected to decrease. Product development and market strategy are positive, with confidence in the innovation pipeline and market share gains. However, SG&A growth impacts margins negatively. The Q&A section reveals optimism but lacks clarity on some financial details. Overall, the combination of positive growth indicators and cost concerns suggests a neutral stock price reaction.

Ulta Beauty, Inc. (ULTA) Q3 2026 Earnings Call Transcript

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