Ulta Beauty lifts annual forecasts as marketing, product investments fuel growth

By Arriana McLymore and Neil J Kanatt

Aug 27 (Reuters) - Cosmetics retailer Ulta Beauty raised its annual sales and profit forecasts on Thursday, betting that marketing and product assortment investments would drive demand as it continues opening stores in the U.S.

Net sales climbed 8.9% to $3 billion, lifted by comparable sales, the Space NK acquisition and 13 net U.S. store openings in the second quarter — nearly half of its first-half total.

Despite sticky inflation, higher-income consumers and young shoppers continue to splurge on trendy and higher-margin fragrance and makeup brands.

Ulta Beauty Chief Executive Kecia Steelman said customers did not trade down in the second quarter, and are continuing to shop for prestige products.

"We've not seen any notable changes in consumer behavior in the quarter," Steelman said. "We're seeing increases in spend across the broader segmentation."

The company, which is in the midst of a turnaround under Steelman, has tapped that demand with celebrity brand exclusives such as rapper Megan Thee Stallion's Hot Girl Summer fragrance, and a push into TikTok Shop that has boosted Gen-Z sales.

In its earnings call, Ulta said nearly half of its sales are coming from exclusive brands and products in its assortment.

"Shaky consumer confidence may even be working in Ulta Beauty's favor by reinforcing the 'lipstick effect' – the tendency for consumers to continue spending on smaller, affordable luxuries like beauty products," research firm Placer.ai said.

The company expects full-year sales to grow between 6.7% and 7.2%, up from its prior forecast of 6% to 7%.

Ulta expects annual earnings per share in the range of $28.70 to $29, compared with its prior forecast of $28.36 to $28.80 per share.

The company's quarterly sales of $3.04 billion beat analysts' average estimate of $2.96 billion, according to data compiled by LSEG.

Its quarterly earnings per share of $6.55 topped estimates of $6.19.

"Ulta's strong quarter is a testament to the work the company has done to establish itself as shoppers' preferred beauty retailer, despite growing competition from the likes of Amazon and TikTok," eMarketer analyst Rachel Wolff said.

(Reporting by Koyena Das and Neil J Kanatt in Bengaluru and Arriana McLymore in New York City; Editing by Vijay Kishore)