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Ulta Beauty (ULTA -5%) surpassed its earnings, revenue, and comparable sales forecasts in Q4 (Jan), announced its international expansion plans, and approved $2.0 bln for share repurchases. However, investors find the beauty retailer's mixed FY25 (Jan) guidance quite unattractive today.

We mentioned ahead of ULTA's Q4 report that given the numerous positive developments within the cosmetics industry, from upbeat sales growth at retailers Kohl's (KSS) and Target (TGT) to manufacturers e.l.f. Beauty (ELF) and Coty (COTY), investors had a high bar for ULTA, as reflected in the stock breaching all-time highs yesterday. Therefore, by projecting FY25 EPS below consensus, forecasting $26.20-27.00, a 2% lift yr/yr at the midpoint, ULTA is enduring a sell-the-news reaction today.

Nevertheless, even when incorporating today's ugly price action, shares of ULTA are still positive on the year and up roughly +40% since late October lows, underscoring a healthy dose of enthusiasm over the resilience of the beauty market.

• This trend remained on display during Q4. ULTA registered a 21% pop in earnings yr/yr to $8.08 per share on top-line growth of 10% to $3.55 bln, both trumping prior estimates. Meanwhile, same-store sales growth edged +2.5% higher, despite lapping +15.6% in the year-ago period, fueled by a 4.5% increase in transactions offsetting a 1.9% dip in average ticket.
• Management noted that it gained market share in the mass market category (value products), while its prestige beauty lineup was more pressured, largely due to increased competition. Categorically, skincare was the notable highlight, posting double-digit comp growth underpinned by exclusive brands. Likewise, fragrance and bath enjoyed low double-digit comp growth in Q4. Conversely, makeup and hair care comps fell by low single digits and mid-single digits, respectively.
• After over three decades since its founding, ULTA is finally expanding outside the U.S. This is its first time trying to launch outside U.S. borders, scrapping its Canadian expansion plans roughly four years ago. However, this time, ULTA is eyeing Mexico, where it commands existing brand awareness, as its next lucrative market, announcing a joint venture with Axo, a global brand operator, to launch Ulta Beauty in Mexico in 2025. Given the timeframe, the venture will not be material to ULTA's financials until FY26.
• In the meantime, ULTA must navigate a somewhat tricky economic backdrop. Management expects beauty to remain healthy but for growth to moderate this year, mainly from intensified competition. Still, ULTA's FY25 revenue outlook of $11.70-11.80 bln was ahead of consensus. The company also issued solid comp guidance of +4.0-5.0%, which is on top of +5.7% growth in FY24. However, ULTA anticipates gross margins to compress modestly yr/yr in FY25 due to lower merchandise margin and deleverage of supply chain costs.

There were several silver linings from ULTA's Q4 report. However, after such an impressive run over the past four months, aided by unwavering demand dynamics seen from many beauty retailers and manufacturers, weak earnings guidance was sufficient to trigger profit-taking today. Nonetheless, we continue to like the positive developments in the beauty space and ULTA's positioning to capitalize on them.