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Ulta Beauty Issues Mixed Fiscal Third-Quarter Results But Pushes Forward With Plans for Store Openings

6:23AM ET 12/04/2020 MT Newswires
Ulta Beauty (ULTA), a beauty products retailer, reported mixed fiscal third-quarter financial results because of the impact the COVID-19 pandemic had on its business but said it will move forward with plans to open new stores.

Sales of $1.55 billion during the thirteen weeks ended Oct. 31 fell from $1.68 billion a year earlier as the virus outbreak undermined operations such as salon and eyebrow services, Ulta said in a statement after the market closed on Thursday. The result narrowly missed the $1.56 billion average analyst estimate compiled by Capital IQ.

Comparable sales slumped by 8.9% as both the number of transactions and the average ticket size dropped. Wall Street had expected, on average, a 10% decline in like-for-like sales, according to a UBS research note released on Nov. 30. UBS' own forecast was for a decline of 8%.

Adjusted earnings per share of $1.64 fell from $2.23 per share a year ago but were still above the market forecast of $1.49 per share. The company said its selling general and administration expenses dropped to $416.4 million from $449.2 million in the prior-year period.

"We reported financial results that exceeded our expectations as we continue to navigate a year of uncertainties," Chief Executive Mary Dillon said in the statement. "We know guests are changing how they shop beauty, but importantly, their engagement with the category remains strong."

Ulta, which scrapped its fiscal 2020 guidance in March, opted out of issuing specific forward earnings guidance. It, however, said its sales expectations have increased for the fourth quarter and that it "now" anticipates comparable store sales to decline in the range of 12% to 14%.

After temporarily pausing new-store openings in the fiscal second quarter, Ulta said it plans to open about 30 new stores in the current financial year. Still, its capital expenditure estimates of between $150 million and $160 million remain below previous guidance of between $180 million and $200 million for fiscal 2020. Although plans for fiscal 2021 have not been finalized, the company anticipates opening at least 30 new stores.

The "use cases for makeup will return as mask usage and social distancing fade and product innovation should return," UBS analysts led by Michael Lasser said in the pre-earnings note. "Plus, consumers may have added new skin care products to their routines during the pandemic that prove sticky, resulting in higher overall spend."

Ulta, which may resume its stock repurchase program in the fourth quarter, said the $180 million to $190 million of COVID-19 related operating costs it expects to incur in fiscal 2020 exclude the likely cut of $51 million in selling, general, and administration expenses in the full year.

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