Ulta Beauty's Q3 2026: Contradictions Emerge on SG&A Strategy and Comp Sales Growth Expectations

Date of Call: December 4, 2025

Financials Results

• Revenue: $2.9B, up 12.9% YOY
• EPS: $5.14 per diluted share, flat YOY
• Gross Margin: 40.4%, compared to 39.7% last year (up 70 bps YOY)
• Operating Margin: 10.8% of sales, compared to 12.6% last year (down 180 bps YOY)

Guidance:

• FY2025 net sales expected to be approximately $12.3B with comp sales growth of 4.4%–4.7%.
• FY2025 operating margin expected to be 12.3%–12.4%; gross margin roughly flat for the year; diluted EPS $25.20–$25.50.
• Q4 comp sales expected to be 2.5%–3.5%; Q4 operating margin 12.0%–12.3%; Q4 EPS $7.61–$7.90.

Business Commentary:

* Sales and Market Share Growth: - Ulta Beauty reported a 12.9% increase in net sales to $2.9 billion for Q3, with a 6.3% increase in comparable sales. - The growth was driven by successful in-store traffic and sales strategies, such as Back-to-School, 21 Days of Beauty, and Fall Haul events.

• Strong Performance Across Categories:
• The company achieved positive comps across all categories, with notable strength in fragrance and skincare, driven by new luxury brands and K-beauty products.
• Strength in fragrance was attributed to new launches from luxury brands like Valentino and Dolce & Gabbana, while skincare saw growth from exclusive product launches.

• Investment in Digital and E-commerce:
• Ulta Beauty's e-commerce platform showed a mid-teens increase in sales, with app engagement accounting for 65% of online member sales in Q3.

• These results were driven by investments in new features like Replenish & Save and Wishlist, along with expanded ship-from-store capabilities.

• International Expansion and Strategic Acquisitions:

• Ulta Beauty continued its international expansion with the opening of 7 stores in Mexico and one store in the Middle East, marking significant milestones in these regions.
• The company's presence in these markets was strengthened by tailored local brand offerings and strategic partnerships, with positive guest responses and strong sales activity.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management said results "exceeded our expectations," reporting "net sales increased 12.9% to $2.9 billion" and they "increased our fiscal 2025 guidance." Leadership repeatedly highlighted momentum, market-share gains across Mass and Prestige, and confidence entering the holiday season while noting prudent caution on consumer spending.

Q&A:

• Question from Lorraine Maikis (BofA Securities): 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?
  Response: Brands are implementing modest, thoughtful price increases; Ulta saw a short-term COGS benefit as lower-cost inventory sold through, but the effect will normalize over time.

• Question from Steven Forbes (Guggenheim Securities): Can you give more color around consumer behavior and whether consumers are migrating to purchasing across channels versus single-channel purchasers given strong e‑commerce growth?
  Response: Digital investments (app features, ship‑from‑store, personalization) are boosting e‑commerce penetration while stores remain dominant (~80% of sales), resulting in true omni‑channel uplift.

• Question from Anthony Chukumba (Loop Capital Markets): On the 2‑year stack comp acceleration, how much is product newness versus better in‑store execution versus improved promotions?
  Response: It's a mix: newness, strengthened merchandising and marketing, and improved operational execution collectively drove the acceleration.

• Question from Anna Andreeva (Piper Sandler): How much of SG&A growth was incremental brand campaign, should we expect SG&A in 2026 to be managed closer to sales, what areas will you still invest in, and how should we think about Space NK's contribution?
  Response: Q3 SG&A rose mainly from higher incentive comp, store payroll and cloud‑software amortization; 2025 was an investment year and management will provide 2026 SG&A plans in March, expecting fewer heavy investments next year.

• Question from Rupesh Parikh (Oppenheimer): How do you feel about the innovation/exclusive brand pipeline for next year?
  Response: Merchants have a strong, balanced newness pipeline for fiscal 2026 and management is confident in its quality and contribution.

• Question from Kelly Crago (Citigroup): Should we still anchor to a long‑term EBIT margin of 12% for FY26 and is SG&A a lever for margin improvement?
  Response: They expect FY26 EBIT margin not to deteriorate from 2025 levels and do not plan another heavy investment year; it's premature to change long‑term targets now.

• Question from Michael Lasser (UBS): Is the momentum starting to fade with consumers shopping around events, and does that affect the need to keep investing?
  Response: No signs of fading—comp growth was consistent across the quarter, holiday early metrics were strong, and management remains committed to execution and investments.

• Question from Irwin Boruchow (Wells Fargo): Can you quantify shrink benefits in Q3, will benefits continue into Q4, and is there more tailwind?
  Response: Q3 showed a modest shrink improvement, another modest improvement is expected in Q4; full‑year 2025 shrink will be lower than 2024 with additional reduction opportunities remaining.

• Question from Michael Baker (D.A. Davidson): How do you see the competitive situation versus earlier in the year given varied competitor results?
  Response: Despite intense competition, Ulta's breadth (low‑to‑lux), 46.3M loyalty members, omni‑channel strengths and experiential differentiation position it to continue taking share.

• Question from Dana Telsey (Telsey Advisory Group): How are prestige versus mass performing and how is Space NK reacting since acquisition?
  Response: Ulta gained share in both prestige (skin, fragrance) and mass (mass makeup); Space NK is early in integration, performs well with strong clienteling—Ulta will preserve its uniqueness while sharing operational learnings.

• Question from Michael Binetti (Evercore): Help bridge the SG&A increase and confirm gross‑margin expectations and Space NK gross‑margin impacts?
  Response: FY25 gross margin expected roughly flat (lower shrink and higher merchandise margin offset by mix and costs); Space NK doesn't become comp until Q3 next year, so related model impacts will phase in then.

• Question from Adrienne Yih‑Tennant (Barclays): Is the 1,800 store target still intact and how should we model pricing versus tariff cost impacts?
  Response: The long‑term 1,800 store target is unchanged; modest price increases are expected and tariff‑related cost impacts will phase through inventory over ~1–2 quarters due to average‑cost accounting.

• Question from Simeon Gutman (Morgan Stanley): How much of this year's improvement is internal (operations/tech) versus external (newness/marketing) and how much more upside remains?
  Response: Significant prior tech/ops investments are beginning to pay off; 2025 was heavy on go‑to‑market investment and the company views itself as in early innings with additional upside ahead.

• Question from Olivia Tong Cheang (Raymond James): Can you unpack the Q4 deceleration to 2.5%–3.5% comp, any government‑shutdown impact, quarter‑to‑date trends, and how new initiatives will contribute next year?
  Response: Q4 guidance is conservative despite strong Black Friday/Cyber Monday and improved in‑stocks because holiday volatility remains; management is confident long term in initiatives (international, marketplace, wellness) but will provide more detail in March.

Contradiction Point 1

SG&A Growth and Investment Strategy

It highlights a shift in the company's approach to SG&A growth and investment strategy, which impacts operational efficiency and profitability.

How should we assess EBIT margin and SG&A leverage for next year? - Kelly Crago(Citigroup)

2026Q3: Our long-term growth targets remain unchanged. We plan to build a plan for 2026 that positions us to deliver against our targets, maintaining SG&A efficiency. - Kecia Steelman(CEO)

What assumptions underlie the flat to low single-digit revenue growth in the second half of the year? Will operating margins align with guidance? - Michael Binetti(Evercore ISI Institutional Equities, Research Division)

2025Q2: We are committed to investing in our long-term growth strategy by investing in our innovation, content and marketing, digital technologies and data analytics, and store experience. - Kecia L. Steelman(CEO)

Contradiction Point 2

SG&A Growth and Investment Strategy

It involves differing explanations of SG&A growth and the company's investment strategy, which are critical for understanding financial management and growth plans.

What portion of SG&A growth was due to the brand campaign? What is the SG&A outlook for next year? - Anna Andreeva (Piper Sandler & Co.)

2026Q3: SG&A growth is primarily due to higher incentive comp, store payroll, and expenses. Advertising leverage is due to higher top-line revenue. - Chris Lialios(CFO)

How are you enhancing the in-store experience and guest presentation? How do you plan to achieve the 4-6% sales growth target? Will 2026 be a transitional year? - Dana Telsey (Telsey Advisory Group)

2025Q4: 2025 is expected to be a transition year, with comps expected to be flat to up 1%. No wide variation is planned quarter-to-quarter. - Paula Oyibo(CFO)

Contradiction Point 3

Comp Sales and Growth Expectations

It involves differing expectations for comp sales growth, which are critical for understanding the company's financial performance and growth prospects.

What are expectations for the comp deceleration to 2.5-3.5% and next year's plans? - Olivia Tong (Raymond James & Associates)

2026Q3: We expect fiscal 2026 comparable sales to grow in the range of 2.5% to 3.5%. - Kecia Steelman(CEO)

How are you optimizing the in-store experience and guest presentation? What steps are you taking to return to the 4-6% sales growth target? Is 2026 expected to be a transitional year? - Dana Telsey (Telsey Advisory Group)

2025Q4: We expect fiscal 2025 comparable sales to be flat to up 1%. - Paula Oyibo(CFO)