Beauty retailer Ulta Beauty, Inc. (ULTA) will report its third-quarter results on November 30. In its second quarter (ended July 29, 2023), the company experienced higher consumer spending on beauty and skincare products. ULTA also raised prices to fortify margins, leading to an approximate 10% year-over-year rise in net sales to $2.53 billion. Its $6.02 EPS also topped the $5.85 Street estimate.

The company slightly raised its fiscal 2023 net sales forecast from $11.0 billion-$11.1 billion to $11.05 billion-$11.15 billion. On the other hand, as shoppers become cautious in their spending, a possible rise in inventories this holiday season could be challenging for retailers like ULTA to navigate.

Given this uncertain backdrop, let’s look at the trends of ULTA’s key financial metrics to understand why it could be wise to wait for a better entry point in the stock.

Ulta Beauty: Steady Financial Growth and Fluctuations from 2021 to 2023

ULTA's trailing-12-month net income trends reveal a steady upward growth pattern with some fluctuations between January 2021 and July 2023. Here's the key information from the data:

• On January 30, 2021, net income started at $175.83 million.
• There were significant increases every four months, reaching $867.97 million by October 30, 2021.
• As of January 29, 2022, ULTA's net income stood at $985.84 million.
• Further strong growth took net income to $1.19 billion as of October 29, 2022.
• The most recent figures show that as of July 29, 2023, ULTA's net income was at $1.26 billion.

In terms of fluctuation, a sharper incline was noticed in the period from January 2021 to October 2021, where net income almost quintupled. However, from 2022 onwards, the rate of increase started to slow down but still stayed on a positive trend.

The net growth rate across this period, taking the first recorded value and the last, shows an increase from $175.83 million to $1.26 billion. This translates to a substantial growth rate over the period of consideration.

In summary, ULTA has shown a robust upward trend in its net income from 2021 to 2023, with some notable fluctuations, but it has consistently increased, reflecting positively on the company's financial health.

The gross margin of ULTA has shown a generally increasing trend over the period from January 2021 to July 2023, based on the given data series.

• In January 2021, the gross margin was 31.7%.
• By May 2021, there was an increase to 34.7%.
• Further significant growth was noted by July 2021, when the gross margin reached 37.5%.
• From October 2021 to January 2022, it slowly climbed to 39.0%.

After this point, the growth rate slowed, but the margin continued to rise until October 2022, up to 39.7%.

• However, starting from January 2023, the gross margin showed slight fluctuations from around 39.6% to 39.4% until July 2023.

Over the entire data series, the gross margin grew from 31.7% in January 2021 to 39.4% in July 2023, signifying a growth rate of approximately 24.3%. It's essential to note that the fluctuation observed towards the end suggests potential volatility in ULTA's gross margin in the future.

ULTA has seen a continuous uptrend in its Return On Sales (ROS) over the course of the given data series, showcasing overall positive performance. Here are key observations from the data:

• The ROS started at 0.038 in January 2021 and consistently increased up to October 2022, when it reached a peak of 0.161.
• After reaching this peak, the ROS began to show minor fluctuations and eventually dropped to 0.153 by July 2023.

Applying more emphasis to the recent data, it can be observed that:

• From January 2022 to October 2022, the ROS slightly fluctuated but mostly hovered around a marginally increasing trend, with a slight increase from 0.15 to 0.161.
• Subsequently, from October 2022 to July 2023, the ROS displayed a marginal decrease from 0.161 to 0.153.

By comparing the first value (January 2021, ROS of 0.038) and the last value (July 2023, ROS of 0.153), the overall growth rate of ROS during the period is calculated to be approximately 303%.

The series data reflects the trend and fluctuations for the current ratio of ULTA. Observations are made from January 2021 to July 2023.

• Starting with a current ratio of 1.87 in January 2021, there has been a general downward fluctuation in the first two years.
• The current ratio had dropped to its lowest of this period by January 2022, reaching 1.46. A difference of approximately 22% decline from the starting value.
• Afterwards, ULTA's current ratio mildly improved and somewhat leveled off in subsequent periods. The values presented slight recoveries and minor drops intermittently, indicating a degree of volatility.
• In the final timestamp in July 2023, the current ratio increased to 1.69, simply maintaining a year-over-year growth considering the same period in the previous year, but still short compared to the peak in January 2021.
• Throughout the timeline, the ratio remained above 1, signifying that ULTA held more current assets than liabilities within the period under review.

From a broader perspective, the aggregate picture over 2.5 years suggests a negative slope, highlighting a natural ebb and flow. However, data tends towards stabilization across the latter duration, which is significant as it nominally showcases the company's ability to cover its short-term obligations.

Analyzing Ulta Beauty's Stock Performance from June to November 2023

From June 2023 to November 2023, the share price of ULTA generally shows an initial increase, a subsequent decline, and a final rise based on the data provided. Here are some key points to note:

• On June 9, 2023, the stock stood at $420.11, which then rose to its peak at $478.31 by July 14; this marks an absolute increase of $58.20 over this period.
• The share price subsequently took a downturn from this point till September, roughly marking a deceleration in the stock’s growth. By September 29, it reached a low of $396.13, a fall of approximately $82.18 from the high in July.
• From October, the trend began to slightly accelerate with the stock closing at $420.01 as of November 29.

While there are periods of both growth and decline in the ULTA's share price during this interval, it's essential to keep in mind that these trends are subject to overall market conditions and specific corporate events influencing the company’s stock. Here is a chart of ULTA's price over the past 180 days.

Analyzing Ulta Beauty's Performance: Quality, Growth, and Sentiment Aspects

The POWR Ratings grade of ULTA, a stock from the Specialty Retailer category, as of the last given date, November 30, 2023, is C (Neutral). Here's an overview of its performances:

• As of June 3, 2023, ULTA held a POWR grade of C (Neutral) and was ranked #20 out of the 43 stocks in the Specialty Retailer category.
• The company maintained its performance throughout June, remaining at a C (Neutral) POWR grade and keeping the #20 rank.
• In the week of June 17, 2023, ULTA fell slightly behind, ranking #22 in the category, but maintained its C (Neutral) grade.
• By July 2023, ULTA kept its C (Neutral) POWR grade but saw a gradual decrease in its ranking, falling to the #23 position which they maintained throughout July and most of August.
• In the week of August 5, 2023, ULTA improved slightly to rank at #21 for two weeks before slightly falling again to #22 on August 26, 2023.
• For the following month from the start of September to the end of October, ULTA held onto the C (Neutral) POWR grade and hovered around the #23 to #25 ranks within the category.
• In November 2023, their ranking continued to dip, reaching #27 on November 25, 2023. However, as of the last recorded week of November 30, 2023, ULTA is ranked #28 while still maintaining the C (Neutral) POWR grade.

In summary, although ULTA often fluctuated in terms of rank, its POWR Grade remained constant at a C (Neutral) throughout this period.

In reviewing the POWR Ratings for ULTA, we can identify three primary dimensions that are of utmost significance. These include Quality, Growth, and Sentiment.

Quality: The Quality dimension for ULTA consistently holds the highest ratings across all recorded months, showcasing an enduring strength in this category. Starting from a rating of 99 in June 2023, the score shows a slight dip toward November 2023, when it reaches 92. Despite this small decline, the quality rating still remains higher than any other dimension throughout this period.

Growth: The Growth dimension, although not as strong as Quality, does stand out, especially when evaluated for clear trends. Specifically, from June 2023 (49) to November 2023 (28), there is a noticeable downward trajectory in the growth rating, pointing toward potentially diminishing growth prospects.

Sentiment: The assessment of the Sentiment dimension also depicts an interesting trend. It starts quite low at 14 in June 2023, then marks an improvement by August 2023, hitting a peak rating of 60. However, it oscillates in September and October, with ratings of 58 and 46, respectively. By November 2023, it bounces back to reach 60 once again, which illustrates fluctuating Sentiment over this time frame, but overall shows an upward trajectory if compared with the beginning of the period.

These key observations provide a deeper insight into ULTA's performance dynamics across various dimensions and help to gauge the potential future direction.

How does Ulta Beauty, Inc. (ULTA) Stack Up Against its Peers?

Other stocks in the Specialty Retailers sector that may be worth considering are Pan Pacific International Holdings Corporation (DQJCY), Betterware de México, S.A.P.I. de C.V. (BWMX), and Aeon Co., Ltd. (AONNY) - they have better POWR Ratings. Click here to explore more Specialty Retailers stocks.

What To Do Next?

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ULTA shares were trading at $420.31 per share on Thursday afternoon, up $0.30 (+0.07%). Year-to-date, ULTA has declined -10.40%, versus a 19.93% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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