Ulta Beauty (NASDAQ: ULTA) saw its shares retreat 2.9% in extended trading on Thursday, settling at $524.47, despite the company posting better-than-expected quarterly results and lifting its full-year guidance. The after-hours decline erased gains made during the regular session, underscoring investor focus on margin trends and the pace of the guidance increase relative to the earnings beat.
For the fiscal second quarter, Ulta reported net sales of $3.036 billion, an 8.9% increase year-over-year and roughly $76 million above the LSEG consensus. Comparable sales rose 3.8%, topping the 2.3% forecast from Reuters. Diluted earnings per share climbed 13.3% to $6.55, beating the consensus estimate of $6.19.
Despite the headline strength, gross margin contracted by 10 basis points to 39.1%, a dip management attributed to the business mix shift from the acquisition of Space NK. Operating income increased 10.1% to $379.6 million, while operating margin remained stable. The company's focus on margin discipline over raw sales growth was evident in the results.
Looking ahead, Ulta raised its fiscal 2026 sales growth forecast to a range of 6.7% to 7.2%, up from the prior 6% to 7%. Comparable sales growth expectations were lifted to 3.2%–3.7% from 2.5%–3.5%, and operating income growth is now projected at 8.3%–9.3%, compared to the earlier 6.5%–9% range. Full-year EPS guidance was increased to $28.70–$29.00, with the new midpoint representing only a 0.94% increase over the previous midpoint—a modest raise relative to the quarterly beat, which likely contributed to the stock's negative reaction.
The company also expanded its share repurchase program for fiscal 2026 to $1.8 billion, up from the prior $1.5 billion target. In the first half of the year, Ulta repurchased 1.4 million shares for $791.1 million. However, actual liquidity remains tighter than the headline capital return figure suggests, with cash at quarter-end of $158.5 million and short-term debt of $339.6 million. Inventory levels were steady at around $2.4 billion.
CEO Kecia Steelman noted that the company's strategy is delivering clear benefits for guests, with higher-income and younger consumers continuing to purchase fragrances and makeup despite subdued consumer confidence. The company's partnership with Pacsun aims to attract Gen Z shoppers, while returning Target customers are seen as a key growth driver.
Wall Street sentiment remains positive, with 17 buy ratings, four holds, and one sell, and an average 12-month price target of $625.10, according to Google Finance. Trading volume during the regular session was 1.23 million shares, roughly 2.1 times the average, and after-hours trading wiped out nearly $670 million from Ulta's closing market capitalization of $23.22 billion.
Risks to the outlook include lower discretionary spending that could reduce beauty demand, as well as factors such as Space NK's product mix, tariffs, promotional activity, inventory management, and debt-financed buybacks that could pressure margins or cash flow. Investors will be watching these factors closely as the company navigates the remainder of the fiscal year.
