Up About 25% This Year, Can Ulta Stock Keep Climbing?

Key Points

• Ulta's latest quarter showed solid comp growth and improved gross margin.

• Management raised full-year sales and earnings guidance.

• Valuation looks fair relative to growth as Sephora's momentum keeps competitive pressure high.

• 10 stocks we like better than Ulta Beauty ›

Ulta Beauty (NASDAQ: ULTA) is back in favor. After a volatile stretch last year, Ulta shares are up roughly 25% year to date as investors warm to improving trends across the specialty beauty retailer. The company operates about 1,500 U.S. stores plus e-commerce and salon services, aiming to be a one-stop destination for mass and prestige cosmetics, skin care, hair care, and fragrance.

That rebound raises a reasonable question: Can the stock continue to climb from here? The latest numbers were encouraging, and management was confident enough to lift the company's full-year outlook substantially. But when considered in light of the current valuation and a fierce rivalry with Sephora, expectations may now be about right rather than too low.

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Image source: Getty Images.

Recent results point to healthy momentum

Ulta's second quarter of 2025 showed solid progress in the areas investors care about, helping provide some support for the stock's higher valuation.

Net sales rose 9.3% to about $2.8 billion, driven by a 6.7% increase in comparable sales (helped by both higher transactions and a higher average ticket). Gross margin expanded to 39.2% from 38.3%, aided by lower shrink and stronger merchandise margin, while earnings per share (EPS) increased 9% to $5.78 despite some selling, general, and administrative expenses (SG&A) deleverage, as incentives and store payroll increased. Management also continued returning cash to investors, repurchasing about $110 million of stock in the quarter and roughly $468 million year to date, with about $2.2 billion still authorized under its program. In the context of the stock's market capitalization of $24.5 billion as of this writing, this is substantial.

Management was largely upbeat.

"Outstanding top line performance, fueled by growth across all major categories, drove market share growth and better-than-expected profitability," Ulta CEO Kecia Steelman said in the company's Q2 earnings release,

However, Steelman also offered some cautious words, saying, "Our outlook for the remainder of the year reflects both the strength of our year-to-date performance and our caution around how consumer demand may evolve in the second half of the year."

Ultimately, however, Ulta did raise its full-year outlook. The company now expects fiscal 2025 net sales between $12 billion and $12.1 billion, comparable-sales growth of 2.5% to 3.5%, operating margin of 11.9% to 12%, and EPS of $23.85 to $24.30. Store opening plans also nudged higher.

Fairly valued

With the stock trading right around record highs, the debate shifts from "are trends stabilizing?" to "what's already priced in?"

Trading at $547 at the time of this writing, Ulta trades around 23 times the midpoint of its full-year EPS guidance. That isn't stretched for a high-quality retailer with a strong brand, improving comps, and prudent capital returns, but it also doesn't leave a lot of slack if growth slows or margins stall.

Additionally, competition remains a key factor. Sephora, owned by LVMH, continues to post growth in revenue and profit and is adding market share globally -- evidence that beauty demand is healthy but also that Ulta isn't competing in a vacuum.

If Ulta's comparable-sales growth holds in the low-to-mid-single digits, gross margin remains around 39%, and the company executes on modest store growth and omnichannel initiatives, today's price could still deliver respectable returns. Furthermore, the company's buyback authorization -- about $2.2 billion remaining as of early August -- also provides a steady tailwind. But there are risks: Higher incentives and store labor are lifting SG&A as a percentage of sales; inventory climbed to support brand launches and store additions; and management itself flagged uncertainty around consumer demand in the back half.

Overall, Ulta looks fairly valued after its run-up this year. Yes, the business is executing well, trends have improved, and guidance moved higher. From here, however, upside likely depends on either continued comp outperformance or further margin expansion, neither of which is guaranteed in a competitive, promotion-sensitive category. Investors already holding the stock can stay patient, given the company's solid fundamentals and ongoing repurchases. Potential buyers, however, might want to wait for a better entry point -- either on a pullback or a period when the stock treads water and earnings catch up.

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Daniel Sparks and his clients have 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.