Ulta Stock is Surging This Holiday Season. Here's Why the Beauty Retailer Just Hiked Its Profit and Sales Outlook.

Ulta Beauty (ULTA +12.65%) was a consistent winner through the 2010s, but in recent years, the company appeared to have lost some of its luster, going through several up-and-down cycles in recent years.

A combination of competition from lower-priced alternatives like E.L.F. Beauty, possible market saturation, and inflation in the broader economy had dampened growth. However, the stock has been on a tear since April, and it soared again in its latest earnings report, closing up 13% on Friday and hitting an all-time high.

Let’s take a closer look at what drove Ulta to new heights.

Ulta is looking up

During a time when many retailers are complaining about weak consumer spending, Ulta was moving in the opposite direction.

Comparable sales jumped 6.3% in the quarter, driving overall revenue up 12.9% to $2.85 billion, which easily topped estimates at $2.7 billion. Earnings per share were flat in the quarter at $5.14, but that beat expectations at $4.60, and the flat growth was due to stepped-up investment in the business as part of its Ulta Beauty Unleashed strategy and its acquisition of Space NK.

The unleashed strategy was implemented by new CEO Kecia Steelman, who took over the leadership post in January and has since reinvigorated the brand. The strategy centered around driving the core business, scaling new businesses, and building the foundation for the future. Steelman refreshed the management team and focused on store-level concepts like presentation, merchandising, inventory level, and assortment.

Those efforts have clearly paid off, and Steelman said as much in its third-quarter earnings report, touting improved in-store and digital experiences, new marketing campaigns, and strength in e-commerce.

What’s next for Ulta

Ulta raised its guidance for the full year, which includes the key holiday quarter. Management now sees comparable sales of 4.4%-4.7%, up from an earlier forecast of 2.5%-3.5%, and it raised its EPS forecast from $23.85-$24.30 to $25.20-$25.50.

Steelman acknowledged the difficult macro environment the company is operating in, but Ulta continues to open new stores, and if it can continue to deliver comparable sales growth, the company looks to have a recipe for success. It also has the potential to make more acquisitions, having bought Space NK, a luxury beauty retailer based in the UK, in July.

Even after the stock surge this year, Ulta still enjoys a reasonable valuation, trading at a forward P/E of 24 based on the updated guidance for the year.

Given the challenges in the broader retail environment, Ulta’s momentum under Steelman bodes well for its long-term growth.