Ulta Beauty, Inc. reported its financial results for the second quarter of fiscal 2024 (13-week period ending August 3, 2024), revealing a mixed performance as the company navigates shifting consumer behaviors and economic conditions. While net sales increased year-on-year, the 1.2% comparable sales decline was a notable drop from the 8% increase reported in the prior year. This decrease was primarily attributed to a 1.8% reduction in transactions, which was partially offset by a 0.6% rise in average ticket size.
Financial performance takeaways
Despite the modest growth in net sales, Ulta Beauty’s gross profit fell to $978.2 million, representing 38.3% of net sales, down from 39.3% in the previous year, according to the financial report. This decline in gross profit margin was driven by lower merchandise margins and the deleveraging of fixed costs associated with store operations.
Selling, general, and administrative (SG&A) expenses also increased, totaling $644.8 million, up from $600.7 million. As a percentage of net sales, SG&A expenses rose to 25.3%, compared to 23.7% last year, largely due to strategic investments in corporate overhead, store payroll, and marketing, as well as higher store expenses.
Operating income for the quarter came in at $329.2 million, or 12.9% of net sales, a decrease from $391.6 million, or 15.5% of net sales, in the second quarter of fiscal 2023. Ulta Beauty’s net income also saw a decline, dropping to $252.6 million from $300.1 million the previous year. Consequently, diluted earnings per share decreased to $5.30, down from $6.02, the report confirmed.
For the first six months of fiscal 2024, Ulta Beauty reported net sales of $5.28 billion, a 2.2% increase compared to the same period last year. Comparable sales growth for this period was minimal at 0.2%, with a slight increase in average ticket size offsetting a small decrease in transactions.
Gross profit remained relatively flat at $2 billion, though the gross margin fell to 38.8%, down from 39.7% in the first half of fiscal 2023. Operating income for the first six months was $730.1 million, or 13.8% of net sales, compared to $833.7 million, or 16.1% of net sales, in the prior year.
Ulta Beauty continued its store expansion efforts, opening 17 new stores during the second quarter, bringing the total to 1,411 locations. The company also repurchased 549,852 shares of its common stock at a cost of $212.3 million during the quarter, contributing to a total repurchase of 1.1 million shares at a cost of $497.5 million for the first six months of fiscal 2024, the report detailed.
Full-year outlook revision
In response to the challenging retail environment, Ulta Beauty revised its full-year outlook, now expecting net sales of $11.0 billion to $11.2 billion, down from the previously projected range of $11.5 billion to $11.6 billion. Comparable sales are expected to range from a 2% decline to flat, compared to the earlier forecast of a 2% to 3% increase.
The company also adjusted its operating margin expectations to 12.7% to 13.0%, down from the prior range of 13.7% to 14.0%, and lowered its earnings per share guidance to $22.60 to $23.50, from the previous $25.20 to $26.00.
In the financial report, CEO Dave Kimbell acknowledged the quarter’s challenges but expressed confidence in Ulta Beauty’s long-term strategy, emphasizing the company’s focus on driving sales and traffic while maintaining financial discipline. “While we are encouraged by many positive indicators across our business, our second quarter performance did not meet our expectations, driven primarily by a decline in comparable store sales," he stated, adding that "we are clear about the factors that adversely impacted our store performance, and we have actions underway to address the trends."
Despite the revised outlook, Kimbell reiterated his belief in the strength of Ulta Beauty’s differentiated business model and its ability to deliver value to shareholders over the long term. "In light of our first half trends and a more cautious outlook, we have updated our full year expectations," he concluded, sharing that "I remain confident in the power of our differentiated model, the strength of our financial foundation, and our ability to deliver value for our shareholders over the long term."