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Ulta Beauty set to break out after strong holiday season

AInvestMonday, Jan 6, 2025 9:02 pm ET
2min read

Ulta Beauty (ULTA) announced a significant leadership transition on Monday, with CEO Dave Kimbell stepping down after an 11-year tenure, during which he helped grow annual revenue to over $11 billion. Kecia Steelman, Ulta's current President and COO, has been named the new CEO, effective immediately. Steelman, who has been with Ulta since 2014, has held various executive roles and is expected to guide the company through a transitional period as it navigates increased competition and shifts in consumer spending. Analysts view the move as an orderly transition, with Kimbell remaining as an advisor until June 28.

Alongside the leadership change, Ulta provided an upbeat update on its holiday performance, boosting its fourth-quarter guidance. The company now expects comparable sales to increase modestly and anticipates an operating margin above the high end of its previously forecasted range of 11.6% to 12.4%. This marks the second consecutive quarter of better-than-expected results, which analysts suggest may indicate that the competitive pressures from Sephora’s store-in-store initiative at Kohl’s have peaked.

Ulta’s shares reacted positively to the news, gaining 5% in after-hours trading and maintaining a strong technical position by holding above the 20-day moving average. The stock’s forward valuation remains attractive, trading at just 18x forward earnings, making it a potential breakout candidate for investors, especially as money flows into the cosmetics sector amid strong holiday earnings trends.

The holiday season’s stronger-than-expected sales underscore Ulta’s resilience despite challenges in the beauty market. Increased competition from Amazon and Sephora has pressured market share in recent years, but Ulta's ability to stabilize and exceed expectations highlights the brand's strength. The company plans to add 200 new stores by 2027 and invest in initiatives designed to reaccelerate growth in 2025, reflecting a focus on long-term performance.

Steelman’s promotion signals continuity in leadership and strategic direction, which investors find reassuring. Her extensive experience, including prior roles at Family Dollar, Home Depot, and Target, positions her well to lead Ulta through this competitive landscape. Her new compensation package aligns with her expanded responsibilities, emphasizing the company's commitment to retaining top leadership talent.

As Ulta navigates the evolving cosmetics market, the strong Q4 guidance and leadership stability set a positive tone for 2025. The holiday sales update suggests that Ulta is effectively managing competitive pressures and shifting consumer preferences, providing a solid foundation for future growth. This outlook aligns with Ulta’s strategy to strengthen its presence in both physical and online retail.

Overall, Ulta’s ability to deliver consistent results, even during challenging times, makes it an attractive name for investors. The leadership transition, coupled with robust holiday sales and a reasonable valuation, suggests the stock has room to grow, especially if the broader beauty market gains momentum. Investors should keep Ulta on their radar as a key player in the cosmetics sector.

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