Ulta Beauty stock pattern points to $600 as earnings rise

Ulta Beauty stock surged by over 6% in the extended hours after the company published strong financial results, which demonstrated resilient demand in the industry. It rose to $566 from the closing price of $533, and is now about 83% from its lowest level this year.

Ulta Beauty’s business is doing well 

Financial results released on Thursday showed that the beauty product retailer, which Warren Buffett invested in last year is doing well in a difficult environment.

Ulta Beauty’s revenue rose by 12.9% last quarter, partially helped by the Space NK acquisition and the openings of new stores. A double-digit revenue growth for a company in its industry is a good thing as it shows that demand is resilient.

Ulta Beauty’s comparable sales rose 6.3%, while its gross profit rose 14.9% to $1.2 billion. This figure was ~40.4% of its revenue, higher than the previous 39.7%.

Ulta Beauty’s growth has been good this year, with the nine-month revenue rising by 8.8% to $8.5 billion, and its net income falling to $796 million. The profit was lower than last year because of the Space NK buyout and a 15.1% increase in its expenses. The CEO said: 

“Exciting assortment newness, improved in-store and digital experiences, and bold marketing efforts are resonating with our guests and drove strong sales results, market share gains, and growth across all categories and channels.”

Ulta continued with its share repurchase program, that has seen it reduce its outstanding shares by over $693 million. Data shows that the company has 44.8 million outstanding shares, down from 55 million in 2021, a move that has pushed its EPS much higher.

However, there were some notable headwinds in this report. One of them was that its inventories rose by 16% to $2.7 billion. The management pointed to the new store openings and the Space NK acquisition. In most cases, a surge in inventories is usually a major headwind for a company.

Another major headwind is that the company’s short-term debt rose to $551 million from $199 million in the second quarter.

The management expects that Ulta Beauty’s business will continue doing well, with the net sales expected to be $12.3 billion, higher than the upper side of the previous range at $12.1 billion.

It also expects that the operating margin will be between 12.3% and 12.4%, higher than the previous estimate of between 11.9% and 12%.

Ulta Beauty stock price technical analysis 

Ulta stock chart | Source: TradingView

The weekly chart shows that the Ulta Beauty stock price has held steady in the past few months, moving from a low of $308 in March to a high of $572 this year.

Ulta shares have remained above all moving averages, and has slowly formed a cup-and-handle chart pattern, which often leads to more upside over time. It is now trading at the shoulders section.

Therefore, the stock will likely continue rising as bulls target the important resistance level at $600. 

The bullish Ulta stock price will become invalid if it drops below the important support at $492. 

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