Ulta Beauty

Ulta Beauty's second-quarter comparable and total sales rose 3.8% and 8.9%, respectively. Operating margin improved to 12.5% from 12.4%, and EPS increased to $6.55 from $5.78. Full-year guidance includes 3.2%-3.7% comparable sales growth, up from 2.5%-3.5% previously.

Why it matters: The Ulta Beauty Unleashed plan to generate growth by investing in Ulta's core operations, scaling new businesses (including international), and using technology to increase efficiency has allowed it to gain share while holding margins in the competitive beauty space. Ulta handily beat our estimates (1.2% comparable sales growth, 11.9% operating margin, $6.09 in EPS) as it drove sales while limiting costs despite promotions in the marketplace. We believe Ulta's strengths, including its targeted marketing, loyalty program of 43 million people, large and productive store base, and broad selection of prestige products, provide an advantage.

The bottom line: Narrow-moat Ulta's shares trade close to our $510 fair value estimate, which we expect to lift by a low-single-digit rate. The firm's outlook suggests moderating sales growth against difficult comparisons in 2026's second half, but this was already included in our forecast. Ulta lifted its 2026 share repurchase target to $1.8 billion from $1.5 billion. With minimal net debt and consistent cash flow, we think buybacks are a good use of cash, with shares trading around our valuation. We maintain our Exemplary Morningstar Capital Allocation Rating.

Between the lines: With its Ulta partnership having ended, no-moat Target recently announced a new shop-in-shop beauty concept. We do not expect this to have much impact on Ulta given its advantages over Target in terms of customer service, product selection, and beauty focus. As evidence of Ulta's greater popularity, no-moat Kohl's Sephora business had a 4% sales decline in the second quarter even as Ulta's comparable sales rose nearly 4%.

We raise our fair value estimate to $520 from $510 per share after Ulta’s second-quarter report.

Ulta’s comparable and total sales rose 3.8% and 8.9%, respectively. Operating margin improved to 12.5% from 12.4%, and EPS increased to $6.55 from $5.78. Full-year guidance includes 3.2%-3.7% comparable sales growth, up from 2.5%-3.5% previously. Ulta handily beat our estimates (1.2% comparable sales growth, 11.9% operating margin, $6.09 in EPS) as it drove sales while limiting costs despite promotions in the marketplace.

Our 2026 forecast includes 6.9% sales growth (up from 6.3% previously) and $28.93 in EPS (from $28.89). For 2027, we forecast 5.3% sales growth, $2.1 billion in EBITDA (15.1% margin), and $31.70 in EPS. Our fair value estimate implies 2027 price/earnings and enterprise value/EBITDA of 16.4 and 10.5 times, respectively.

We estimate Ulta will achieve 5% compound average revenue growth over the next 10 years, well below its 13% average annual sales growth over the past decade. Further, we forecast approximately 4% yearly same-store sales growth in the long run. Past results were aided by many new stores that matured over time, improved marketing, an improved loyalty program, and brand additions. Now, though, Ulta has a larger number of mature stores, and we expect new stores in existing markets will reduce sales at existing stores.

We forecast Ulta's average gross and operating margins at 38.7% and 12.5%, respectively, over the next decade. Excluding depreciation, we forecast selling, general, and administrative (including advertising) expenses at about 24% of sales over the next 10 years, higher than the 22% five-year historical average. Ulta's costs have generally risen on greater e-commerce, growing competition, and additional staff and services in its stores. However, its operating margins may get some benefit from its cost-reduction plan, which includes cuts in areas like logistics and technology, lower real estate costs, greater supply chain efficiency, and improved pricing and product mix. The firm has targeted $200 million-$250 million in cost cuts by 2027.

We forecast Ulta's 2026 capital expenditure at $425 million, or 3.2% of sales. We forecast Ulta will open 60 stores (net) this year while remodeling some existing stores. We estimate capital expenditures will settle at just under 4% of sales in the long run.

We assign a narrow Morningstar Economic Moat Rating to Ulta Beauty due to the strength of its intangible brand asset. Ulta is the largest specialty beauty retailer in the United States with more than 1,500 US stores and yearly revenue above $12 billion. Offering about 600 brands (including dozens of new ones each year), we believe it has a greater selection in the major beauty categories of makeup, hair care, skin care, fragrance, bath, and accessories than any other US specialty beauty retailer.

As evidence of its competitive edge, over the past five years, Ulta has achieved average annual gross and adjusted operating margins of 39% and 15%, respectively. For comparison, US department stores typically report operating margins in the midsingle digits. Moreover, Ulta's margins have expanded as the firm has grown. Prior to 2010, the company reported gross and operating margins of about 30% and 5%, respectively. Further, Ulta’s adjusted returns on invested capital including goodwill have consistently been above our 9% weighted average cost of capital estimate at an annual average of 22% over the past 10 years. Over the next 10 years, we estimate its ROICs will average about 22% as well.

We think Ulta achieves strong profitability due to its unique place in US beauty retail. Founded in 1990 by former executives of a drugstore chain, the company was originally positioned as a discount retailer of mass-market brands. In 1999, when Ulta operated just 75 stores and generated $206 million in sales, then-CEO Lyn Kirby introduced a plan to transform it into a beauty retailer with mass, prestige, and professional brands under one roof. Ulta grew rapidly thereafter and has achieved positive same-store sales growth in every year since at least 2000 (excluding the pandemic-affected 2020). This strategy has allowed it to pull shoppers away from department and other mall-based stores. Between 2014 and 2025, according to Euromonitor, Ulta more than doubled its share of the US beauty specialty retail market (to 36.4% from 17.1%).

Beauty products are available through a huge number of channels including physical stores, e-commerce, social media, direct-to-consumer from manufacturers, and more. Yet, our view is that Ulta has an advantage because it has a strong selection of merchandise and services, and women and girls enjoy shopping in its stores. Smaller and low-end retailers struggle to compete because they cannot gain access to prestige beauty brands or innovative products that often drive beauty sales.

One of Ulta’s key competitive advantages is its loyalty program. From about 11 million members at the end of 2012, this program has grown to more than 47 million members, which is roughly 35% of US women aged 15-74. Members now account for more than 95% of Ulta’s sales, and annual retention (shop at Ulta at least once in 12 months) is more than 70%. The company also offers a branded credit card with millions of holders. We think Ulta’s loyalty program and branded cards provide unique customer data for merchandising and targeted digital marketing.

Another key advantage for Ulta is its store base. The company has more than 1,500 freestanding US stores. Even with the rise of online shopping, women and girls like to visit physical stores so that they can view and sample new products, use salon services, and speak with brand experts. Most of its stores are about 10,500 square feet and are in suburban strip malls. The large size of Ulta’s stores means that they can carry more than 600 brands and more than 25,000 individual products.

Ulta is beginning to expand outside of the US. In mid-2025, it acquired Space NK, a premium beauty retailer in the UK and Ireland. SpaceNK had 86 stores as of the end of 2025. Further, Ulta is opening stores under its own name through a franchise partnership with Grupo Axo in Mexico and a joint venture with Alshaya Group in the Middle East. Although neither Space NK nor Ulta’s international partnerships will generate material profit for the company in the near term, it needs to develop an international strategy as opportunities for new stores in the US are likely to diminish over the next few years.

As with makeup and other categories, we think Ulta has had a big impact on the US haircare market. In the past, professional haircare products were primarily purchased through salons, and some products were not widely available. Now, many professional stylists are increasingly shopping at Ulta. As evidence of its success, we think it has taken share from salons and specialty haircare retailers; for example, Sally Beauty (founded in 1964), has had no revenue growth over the past 10 years. Regis, America's largest hair salon company, has also reported poor retail sales in recent years at both its owned and franchised hair salons. It has sold or shuttered many salons, having reduced its fleet to fewer than 4,000 franchised and owned salons at present from more than 9,000 in 2017. We do not think independent salons or even large corporations have the financial resources or physical space to match Ulta's selection and prices.

No other factors contribute to a moat for Ulta besides its brand intangible asset, in our opinion. The firm has no significant cost advantage as its expense structure is like that of many other retailers with physical stores. In terms of sourcing, it competes in a large and crowded space and likely has no pricing power with major vendors, such as global brands L'Oréal, Estée Lauder, and Shiseido. Ulta does not benefit from any economies of scale, either. While it has a large loyalty program, this does not provide a network effect and there are no switching costs; even rewards members spend only 30% of their beauty dollars with the company.

As the largest specialty beauty retailer in the US, Ulta has access to leading brands and exclusive products. Its merchandising encourages frequent store visitation and draws shoppers from department stores.

Ulta's loyalty program of more than 47 million active members provides it with a key advantage over other sellers of beauty products. Ulta can use consumer data to improve its marketing, merchandising, and e-commerce.

Ulta benefits from rising consumer interest in beauty and wellness and the proliferation of innovative products with high price points.

Beauty products are available through many retail channels, putting Ulta in competition with the largest retailers in the US. Retailers like Amazon, Kohl’s (through its Sephora partnership), and Target (Ulta’s former partner) have significantly increased their beauty offerings in recent years.

Consumer spending on beauty and product releases from major producers are largely outside of Ulta’s control but can affect its sales.

Ulta's yearly sales growth has moderated from peak levels as it has become much larger and domestic store openings have slowed.