Ulta Beauty (NASDAQ: ULTA) is back to its winning ways. After a tough period of decelerating sales growth and falling profitability, the company just closed a fiscal year that reversed both of those trends. The spa and beauty products retailer's holiday results weren't uniformly positive, but they did demonstrate gathering market-share momentum heading into 2019.
Below, we'll look at a few highlights from the conference call with analysts in which CEO Mary Dillon put those wins and losses into longer-term context for investors.
1. How it's beating the competition
Ulta edged past management's fourth-quarter guidance as sales gains accelerated for the second straight quarter, following more than a year of slowing growth. In fact, the 9.4% increase in comparable-store sales marked its best performance since late 2017. Customer traffic played the biggest role in the holiday spike, with shopper transactions rising 7%.
2. The digital trends
Digital sales gains have been a huge part of Ulta's growth story lately. The channel contributed around half of its comps growth in recent quarters and has shot past management's expectations to quickly account for over 10% of the broader business in 2018 .
That trend reversed itself a bit over the holidays, with e-commerce growth slowing to 25% from 43% in the prior quarter. But executives believe that change merely reflects customers' increasing preference to visit stores rather than shop entirely online.
3. Expect fewer new stores
Ulta's days of opening 100 new locations each year may be over, as executives plan to launch 80 new locations in 2019 and about 75 in 2020. The latest crop of spas is performing well, they said, but the slowdown is aimed at improving the strength of the broader portfolio. Ulta has a good presence in nearly all of the markets it wants to enter today, and so future launches will mainly be targeted at bulking up its existing infrastructure. Management hasn't lowered its long-term growth outlook of around 1,700 stores -- up from 1,200 today. But it could take more time to reach that goal.
4. Expect a few major shifts in 2019
Ulta's 2019 outlook implies a few major shifts in the retailing landscape over the next year. Sales growth is expected to slow overall, mainly as a result of more modest e-commerce gains. Yet the retailer is predicting its first profitability improvement in three years.
Executives are also moving their spending priorities back toward physical stores rather than the e-commerce channel. They will remodel and upgrade hundreds of locations in 2019, leading to capital outlays of between $380 million and $400 million, compared with $319 million last year.
This spending should be well covered by double-digit overall sales gains and rising profitability, though, and executives believe it will lay the groundwork for steadier growth in 2020 and beyond.
10 stocks we like better than Ulta BeautyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Ulta Beauty wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019