Ulta Beauty Lifts Profit Outlook as Gross Margin Hits Five-Quarter High
The beauty retailer posted $3.16 billion in first-quarter net sales, up 11.1% from a year earlier, and raised its full-year earnings guidance.
Ulta Beauty (ULTA) reported first-quarter net sales of $3.16 billion, an 11.1% increase from the year-earlier period, as the beauty retailer lifted its full-year earnings guidance on the strength of expanding margins.
The quarter marked a notable inflection in profitability. Gross margin reached 40.1%, the highest in five quarters, up from 39.1% a year ago and well above the 38.1% recorded in the fourth quarter of fiscal 2025. Lower inventory shrink and higher merchandise margins drove the results. Operating income rose 11.6% to $448.3 million, representing 14.2% of net sales — a margin that has climbed steadily from 10.8% in the third quarter of fiscal 2025.
Comparable sales increased 5.3%, a pace that has decelerated from 6.7% in the second quarter of fiscal 2025. The slowdown has been concentrated in transaction counts, which grew 1.6% in the latest quarter compared with 3.7% a year earlier, while average ticket growth held at 3.7%. The deceleration comes as the category mix shifts: cosmetics' share of sales fell to 35% from 41% in the third quarter of fiscal 2025, while skincare and wellness grew to 24% from 23%.
Diluted earnings per share increased 15.5% to $7.74, outpacing operating income growth as share repurchases reduced the diluted share count to roughly 44 million from 45.5 million a year ago. The company repurchased $555 million of stock in the quarter alone, an accelerated pace compared with $890.5 million for all of fiscal 2025. That capital return partly explains a rise in short-term debt to $144.9 million from $62.3 million at the end of fiscal 2025, while cash fell to $166.3 million from $424.2 million.
SG&A expenses as a percentage of net sales rose to 25.8% from 24.9% a year ago, reflecting deleverage from corporate overhead tied to strategic enterprise investments and store costs, partially offset by advertising leverage. The ratio has remained elevated across recent quarters, reaching 29.4% in the third quarter of fiscal 2025.
Merchandise inventories grew 12.5% to $2.4 billion, a moderation from 16.0% growth at the end of the third quarter and 20.5% at the end of the second quarter of fiscal 2025, suggesting stock levels are normalizing. The store footprint expanded to 1,521 U.S. locations and 87 international company-operated stores, with 18 domestic and one international opening during the quarter.
For the full fiscal year, Ulta narrowed its operating income growth guidance to a range of 6.5% to 9% from an initial 6% to 9%, and raised its EPS outlook to $28.36 to $28.80 from $28.05 to $28.55. Net sales growth guidance of 6% to 7% and comparable sales growth of 2.5% to 3.5% were unchanged. The company also named Kelly Garcia, a former Domino's Pizza technology chief who has served on Ulta's board since 2022, as its new chief technology officer effective August 31.