Narrow-Moat Ulta Beauty Continues To Shine, but Comparisons Will Get Tougher; Shares Expensive

Wrapping up an exceptional year, narrow-moat Ulta Beauty lapped our expectations in 2022’s fourth quarter, posting 15.6% same-store sales growth against our 7.5% forecast. While approximately 500 basis points of the increase was attributable to price increases, traffic remained very strong (transactions were up 13.6%). Although there has been much concern over slower consumer spending amid high inflation, beauty, powered by a rising interest in wellness and product innovation, has been very resilient. Given the outperformance, we expect to lift our $352 fair value estimate by a mid-single-digit percentage, but view Ulta’s shares as overvalued.