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Kylie cosmetics display at an ULTA store in New York.
Scott Mlyn | CNBC

Ulta Beauty topped Wall Street’s expectations for its holiday-quarter earnings and revenue, as shoppers continued to save room in their tighter budgets for beauty products during the celebration season.

The holiday season meant more people were buying beauty products to prepare for parties and to use as gifts. “We describe it as ‘gifting and glamming,'” CEO Dave Kimbell told CNBC.

The affordable luxuries of the beauty sector have made it a mainstay spending category, even as inflation shrinks consumer wallets and makes necessities like groceries more expensive. Kimbell said that consumer spending across income levels remained strong in the fourth quarter and that customers are not trading down to cheaper options, despite higher prices on the company’s products.

Same-store sales grew 15.6% in the fourth quarter, slower growth than the 21.4% jump it posted in the same quarter the previous year, but well above analysts’ estimates of 8.4%, according to StreetAccount.

Kimbell said that makeup, haircare, skincare and fragrance products all saw double-digit sales growth in the fourth quarter. He added that the wellness segment, which includes items like nutritional supplements and silk pillowcases, is also growing after the pandemic put a renewed emphasis on self care.

As a percentage of net sales, gross profit stayed flat compared to the year-ago quarter in part due to higher inventory shrink. Kimbell cited organized retail crime as the primary reason for shrink, which he said is a “retail-wide challenge.”

Here’s how the company did in the fourth quarter, ended Jan. 28, compared with Refinitiv consensus estimates:

  • Earnings per share: $6.68 vs. $5.68 estimated
  • Revenue: $3.23 billion vs. $3.03 billion estimated

Net income rose 17.8% year over year to $340.8 million, or $6.68 per share, from $289.4 million, or $5.41 per share, in the fourth quarter of 2021.

Looking ahead, the company is expecting full-year revenue for 2023 to be between $10.95 billion and $11.05 billion along with earnings per share of between $24.70 and $25.40. Wall Street was anticipating 2023 revenue of $10.74 billion and earnings per share of $24.25, according to Refinitiv.

Ulta expects the majority of that growth to come during the first half of 2023 and level off in the back half. Kimbell said though higher prices won’t necessarily come down, the company is planning to decelerate the level of its price hikes.

The company is also working on expanding its footprint. It opened 12 new stores in the fourth quarter and is shooting for between 25 and 30 new locations in 2023. The ultimate goal is to open roughly 100 new stores in the next two years, Kimbell told CNBC.

Ulta is also looking to keep building on its partnership with Target. Ulta shop-in-shops are currently in 350 Target locations nationwide, and Kimbell said the company is on track to be in up to 450 more over time.

Along with brick-and-mortar, the makeup seller wants to strengthen its digital footprint. Kimbell said the company is in the final stages of its “digital store of the future,” an effort to revamp its e-commerce platforms.

As of Thursday’s market close, Ulta shares are up about 11% this year, outpacing the S&P 500, which is up about 2% year to date.

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