After a rocky couple of years, Ulta Beauty (ULTA) is staging a fierce comeback, with its stock surging and its investment case looking increasingly better by the quarter. Evidently, the company’s Q1 results posted just last week lit a spark under the stock, showcasing robust comparable sales growth, strategic wins, and an aggressive share buyback program.
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Despite its recent rally, I believe Ulta Beauty still offers attractive value, making it a compelling choice for long-term investors. Here’s why I remain bullish on the stock.
Renewed Momentum in Comparable Sales Growth
Walking into an Ulta store these days feels like stepping into a bustling beauty bazaar, and the numbers certainly back up that vibe. In Q1, Ulta reported a 2.9% increase in comparable sales, blowing past Wall Street’s modest expectations of just 0.2% growth. This uptick, driven by a 2.3% rise in average ticket size and a 0.6% increase in transactions, shows Ulta is pulling customers back in a big way, even in the face of the brutal competition facing the beauty industry these days.
Under new CEO Kecia Steelman, the company’s “Ulta Beauty Unleashed” plan is resonating, with fresh promotions and a beefed-up loyalty program, now boasting a record 44.6 million members and keeping shoppers hooked.
One could argue that this is a one-quarter fluke. However, Ulta’s focus on exclusive products and in-store experiences, like their expanded Target shop-in-shops, is undeniably driving traffic. There is no reason to think that this trend will fade soon, especially since Ulta is coming off some difficult quarters (hence the stock’s underperformance in 2024), and the recent numbers indicate that a proper rebound has now been established.
To be frank, the company’s ability to outpace estimates in such a tough retail environment (particularly competition-wise) signals a consumer base that’s still willing to splurge on beauty, even during a period of economic uncertainty.
Expanded Reach Creates Strategic Win for ULTA
One of the more interesting takeaways from Ulta’s report is that the company isn’t solely relying on its core business to drive growth, but is instead exploring new opportunities. During the earnings call, executives talked about plans to expand into Mexico and the Middle East this year.
They’ve already opened six new stores this quarter, bringing their total to 1,451, after adding 100 Ulta Beauty stores at Target locations last year. Interestingly, these moves don’t necessarily seem to be about expanding square footage (as is the case with retailers), but rather about making Ulta a go-to destination for beauty lovers everywhere.
Then there’s the loyalty program, which grew 3% last year to the 44.6 million mark. It’s a sticky ecosystem that keeps customers coming back, and Ulta is doubling down with digital upgrades and personalized marketing. When you pair these efforts with exclusive brand launches, you can see how Ulta can claw back market share from competitors like Sephora and Amazon, even as those giants loom large.
Buybacks and Resilience: A Shareholder’s Dream
Ulta has a tremendous track record of share repurchases. It has essentially been using the majority of its free cash flow over the years to repurchase as many shares as possible. For context, over the past decade, Ulta has reduced its share count by 30%.
In Q1, this trend continued, with Ulta repurchasing $249.5 million worth of stock. With $2.7 billion remaining under its $3 billion buyback program, the company is clearly signaling confidence in both its future and its current stock valuation. I love seeing a company back itself like this—it’s as if management is saying, “We know we’re undervalued, and we’re not afraid to show it.”
ULTA Value in Plain Sight
Regarding Ulta’s valuation, even after the stock’s post-earnings rebound, it’s still trading at just 20x this year’s expected EPS. Considering that sales are on the rebound, margins are stabilizing, and buybacks are continually reducing the share count, EPS growth is expected to pick up in the coming years. In fact, repurchasing shares at today’s valuation is likely to prove exceptionally accretive in the long term. Therefore, I believe that the current multiple undervalues Ulta’s medium-term prospects.
Is Ulta Beauty Stock a Buy, Sell, or Hold?
Despite the stock’s recent rebound, Wall Street remains optimistic about Ulta. The stock still features a Moderate Buy consensus rating, with 12 analysts currently bullish, 12 neutral, and just one bearish. Now, Ulta’s average stock forecast of $470.04 indicates marginal downside potential over the coming twelve months.
A Beauty Stock Ready to Shine
Ulta Beauty appears to be regaining its momentum. The company delivered strong comparable sales, executed key strategic initiatives, and continues to return value to shareholders through a robust buyback program. Trading at roughly 20 times earnings, Ulta offers a compelling blend of value and growth—an uncommon combination in the often-volatile retail sector. With a meaningful margin of safety and solid upside potential, the stock presents a highly attractive investment opportunity at current levels.