“My lipgloss is cool/My lip gloss be poppin’,” sang Lil Mama in her 2000s hit tune “Lip Gloss”. The cosmetically themed tune additionally aptly sums up the state of US retail in late 2022.
Inflation-weary shoppers are slicing again on discretionary spending to deal with necessities equivalent to gasoline and meals. But they’re nonetheless joyful to splurge on small luxuries equivalent to lipsticks. Despite weakening shopper confidence, gross sales of magnificence merchandise are booming. That has made specialist retailer Ulta Beauty one of many few winners in a sector marred by stock pile-ups and revenue warnings.
The inventory is buying and selling at a report excessive after climbing greater than 13 per cent this 12 months. It has outperformed each the S&P 500, down 15 per cent, and the S&P 500 retail index, down 27 per cent.
Ulta’s newest outcomes underscore the corporate’s attract. Like-for-like gross sales jumped shut to fifteen per cent in the course of the third quarter. That progress — spectacular by itself — comes on prime of a 26 per cent enhance within the year-ago interval. Margins grew and helped drive a 12 per cent rise in internet revenue for the interval.
Ulta is in one thing of a candy spot. The return of huge social gatherings is driving demand for magnificence merchandise. At the identical time, shoppers are buying and selling down. Instead of splurging on a big-ticket merchandise, they’re treating themselves to $20 lipsticks.
It just isn’t solely make-up that’s standard. Ulta noticed robust gross sales progress in haircare, skincare and fragrances as effectively. More tellingly, buyer spending went up throughout all revenue ranges, with each mass and status merchandise clocking double-digit gross sales progress.
Ulta’s profitable streak can proceed. The firm has raised its full-year gross sales and earnings steerage. At about 21 instances ahead earnings, the corporate’s valuation stays cheap. Walmart trades on 24 instances. Beauty is within the eye of the investing beholder. Those who fear the shares have peaked ought to stick round.
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