Why Ulta Beauty Stock Gained 13% in December

Shares of Ulta Beauty (NASDAQ: ULTA) were climbing higher last month after the beauty superstore chain posted better-than-expected results in its third-quarter earnings report, showing improvement on the bottom line, and that the worst of its market-share losses seemed to be behind it.

According to data from S&P Global Market Intelligence, the stock finished the month up 13%. As you can see from the chart, the stock jumped early in the month on the earnings report and managed to add on gains later in the month, even as the broad market pulled back.

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ULTA data by YCharts

Ulta shows signs of a comeback

Ulta's third-quarter earnings report wasn't exactly stellar, but showed the company moving past previous challenges and doing a better job of managing costs. The stock jumped 9% on the news.

Comparable sales in the quarter rose 0.6%, lifting revenue up 1.7% to $2.53 billion, which beat estimates at $2.5 billion. Comparable sales were driven by a 0.5% increase in transactions, indicating that traffic was slightly improved.

Net income was down slightly from $249.5 million to $242.2 million, though earnings per share rose from $5.07 to $5.14 as the company's reduced shares outstanding by more than 4% over the last year from share buybacks. That was much better than estimates at $4.52, showing that investors were happy with basically flat growth.

Ulta also raised its full-year guidance. The company now expects revenue of $11.1 billion to $11.2 billion, up from a previous range of $11 billion to $11.2 billion, and sees adjusted earnings per share of $23.20 to $23.75, compared to its earlier forecast of $22.60 to $23.50.

The update seems to reflect the success of its turnaround plan, which includes improving its product assortment and customer experience, and leveraging its loyalty program.

Wall Street generally cheered the earnings report, raising its price targets on the stock, and it built on that momentum over the rest of the month -- even after the market was rattled by the Federal Reserve's higher-for-longer interest rate forecast.

Image source: Getty Images.

What's next for Ulta?

The beauty chain dealt investors another surprise in January, announcing on Jan. 6 that CEO Dave Kimbell is retiring, to be replaced by Kecia Steelman, who previously served as COO.

The company also gave a bullish update on the fourth quarter, saying that it now expects comparable sales to increase modestly in Q4 and operating margin will be above its previously forecasted range of 11.6% to 12.4%, sending the stock briefly higher.

Based on the momentum in Q4, the cosmetics stock could be in store for a strong recovery in 2025.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ulta Beauty. The Motley Fool has a disclosure policy.