Ulta Beauty stock surges after Q1 EPS beat and upgraded FY2025 guidance

Ulta Beauty, Inc. (NASDAQ: ULTA) closed up nearly 12% on May 30, 2025, hitting a 52-week high of $471.46 following the release of stronger-than-expected Q1 FY2025 earnings and a raised full-year outlook. The retailer reported diluted earnings per share of $6.70 for the quarter ended May 3, 2025, exceeding analyst expectations of $5.81 and outperforming on both revenue and comparable sales metrics.

Net sales grew by 4.5% year-over-year to $2.85 billion, supported by a 2.9% increase in comparable store sales, which includes e-commerce. This growth came amid a challenging retail backdrop marked by inflation fatigue and subdued discretionary spending, underscoring Ulta’s strategic resilience and operational execution.

CEO Kecia Steelman attributed the quarter’s performance to the company’s “Ulta Beauty Unleashed” strategy, which she said is energizing internal teams, deepening guest loyalty, and maintaining momentum despite macroeconomic headwinds.

How Are Shifting Beauty Trends Reshaping Ulta’s Category Performance?

A deeper look into Ulta Beauty’s Q1 sales mix reveals a noteworthy shift in consumer preferences. Cosmetics, traditionally the company’s largest revenue contributor, fell from 42% to 40% of net sales. In contrast, skincare and wellness rose to 25%, up from 23% last year, while fragrance sales increased from 10% to 11%.

This data indicates an accelerating pivot toward wellness and self-care categories, aligning with industry-wide shifts toward long-term efficacy products over color cosmetics. Fragrance, often viewed as a discretionary item, saw renewed demand amid post-pandemic normalization in consumer lifestyles.

Haircare slid slightly to 18% from 19%, while the salon services segment remained stable at 4%. These shifts not only reflect evolving consumer sentiment but also reinforce Ulta’s commitment to adapt through targeted brand activations and curated inventory expansion.

What Were the Financial Highlights in Q1 FY2025?

Ulta’s Q1 net income was $305.1 million, down from $313.1 million a year ago, primarily due to higher SG&A expenses and a modest decline in operating margins. Despite the dip in net income, earnings per share increased from $6.47 to $6.70, driven by a reduction in outstanding shares via aggressive buybacks.

Gross profit rose 4.2% to $1.11 billion, though the gross margin slightly compressed to 39.1% from 39.2%. The margin decline was attributed to deleveraging in store and supply chain fixed costs, partially mitigated by improved inventory shrink management.

SG&A expenses grew 6.7% to $710.6 million, resulting in a deleverage to 24.9% of net sales from 24.4% last year. Ulta noted that the increase stemmed from elevated store payroll and benefit costs, along with operational expenses, despite some relief from corporate overhead efficiencies.

Operating income was largely flat at $401.8 million, while the effective tax rate rose to 24.6%, up from 23.2% in Q1 FY2024, due to reduced tax benefits from stock-based compensation.

What Role Did Share Repurchases Play in the EPS Beat?

Ulta’s EPS outperformance was materially aided by share repurchase activity. During the quarter, the company bought back 986,733 shares at a cost of $358.7 million. This financial engineering significantly reduced the average share count, boosting per-share earnings even as absolute net income declined.

The move aligns with Ulta’s broader capital allocation strategy, combining organic growth investments with shareholder returns. As of May 3, 2025, the company still had $2.3 billion remaining under its $3.0 billion buyback authorization announced in October 2024.

How Is Ulta Managing Inventory and Store Expansion?

Ulta ended the quarter with merchandise inventories of $2.1 billion, an 11.3% increase from $1.9 billion in Q1 FY2024. The inventory build was driven by new brand introductions and strategic investments across high-growth categories, particularly skincare and fragrance.

The company opened six new stores, remodeled four, and relocated two, bringing the total count to 1,451 stores across all 50 U.S. states, with a combined footprint of 15.2 million square feet. Ulta reaffirmed its guidance of approximately 60 net new store openings and 40–45 remodels/relocations for FY2025.

These moves reflect Ulta’s continued bet on physical retail in a digital-first world, reinforcing its belief in omnichannel synergy to deliver consistent guest experiences.

What Does the Updated FY2025 Guidance Signal?

Ulta updated its full-year outlook upward, raising its net sales forecast to a range of $11.5 billion to $11.7 billion, from the prior range of $11.5 billion to $11.6 billion. Comparable sales growth guidance was also increased from 0%–1% to 0%–1.5%.

The most significant boost came in EPS guidance, revised to $22.65–$23.20 from $22.50–$22.90. Operating margin guidance was held steady at 11.7%–11.8%, suggesting Ulta plans to manage costs closely despite planned investments and elevated SG&A pressures.

Capital expenditures remain between $425 million and $500 million, and depreciation is expected to fall in the range of $290 million to $300 million.

What’s the Market Sentiment Around ULTA Stock?

Following the earnings announcement, Ulta stock surged by 11.8%, closing at $471.46 on May 30, a fresh 52-week high. The positive surprise on EPS, coupled with raised guidance, catalyzed a sharp re-rating of the stock by analysts and institutional investors.

Telsey Advisory Group upgraded its price target from $460 to $520, maintaining an “outperform” rating. The revised target implies a further upside of over 10% from current levels. Analysts cited Ulta’s resilient sales mix, effective inventory strategy, and cash returns as justification for the bullish stance.

Institutional ownership in Ulta remains strong, with approximately 94.7% of shares held by institutional investors. Major holders include Vanguard Group, BlackRock, and State Street, all of whom continue to maintain significant positions. FII participation has remained neutral, while domestic mutual funds have shown mild accumulation, possibly in anticipation of continued recovery in discretionary retail.

Despite the strong run-up, the broader sentiment is still mixed. Some analysts remain cautious on account of margin pressures and elevated inventories, suggesting the stock may already be pricing in much of the upside unless further category re-acceleration occurs in cosmetics.

What Is the Future Outlook for Ulta Beauty?

Ulta’s forward trajectory depends on multiple intersecting factors. While Q1 has validated the brand’s ability to adapt to changing preferences—particularly in skincare, wellness, and fragrance—cosmetics remains a core segment that will need revitalization to sustain long-term growth.

The company’s balance sheet remains robust, with $454.6 million in cash and no long-term debt, enabling flexibility for reinvestment, potential acquisitions, or further capital returns. Continued investment in omnichannel capabilities, loyalty programs, and exclusive brand partnerships is expected to underpin customer engagement and retention.

Looking ahead, Ulta’s strategy of store expansion, margin discipline, and tactical capital allocation positions it to navigate a volatile consumer environment. However, investors will be closely watching Q2 results for signs of margin stabilization and a possible rebound in the cosmetics category.