Shares of cosmetics retail chain Ulta Beauty(NASDAQ: ULTA) popped on Friday after the company reported financial results for the third quarter of 2023. As of 1 p.m. ET, Ulta Beauty stock was up about 12%.
Beauty spend remains resilient
In Q3 (which ended Oct. 28), Ulta Beauty had net sales of almost $2.5 billion, which was up a healthy 6.4% year over year. Net-sales growth was primarily driven by same-store-sales growth of 4.5%. But the company also opened 12 net new stores during the quarter, which provided a small boost to sales as well.
Ulta Beauty's Q3 gross profit margin was 39.9%, and its operating margin was 13.1%. Both of these profit metrics were down from the prior-year period.
That said, Ulta Beauty's profits were still good and within normal ranges. The chart doesn't reflect the company's Q3 results, but it does show that its gross margin and operating margin were still strong in Q3 compared to its averages over the last five years.
ULTA Gross Profit Margin (Quarterly) data by YCharts
Ulta Beauty is still finding ways to grow. And its profits are holding up nicely. Both of these things were encouraging to investors today.
What to watch with Ulta Beauty
Even after today's rally, Ulta Beauty stock is still about 15% lower than its all-time high. Management has apparently believed its stock was too cheap in 2023, considering it's repurchased 1.8 million shares for $841 million year to date. This makes share repurchases a huge part of its capital-allocation strategy.
In part due to aggressive share repurchases, Ulta Beauty's cash and cash equivalents is now down about 50% year over year, and it borrowed nearly $200 million on a short-term basis in Q3. But it's customary for the company's cash to dwindle this time of year as it builds up inventory for the holiday shopping season. The fourth quarter then usually brings cash back up.
Ulta Beauty CEO Dave Kimbell said, "The holiday is off to a good start." And this is likely why the company raised the low end of its full-year sales guidance, with management now expecting its top line to grow 5% to a new all-time high.
In summary, things are still looking good for Ulta Beauty.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ulta Beauty. The Motley Fool has a disclosure policy.
