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Ulta Beauty (NASDAQ: ULTA) recently posted its fiscal third-quarter earnings report, leading to a rather violent 13.4% sell-off the next day. This was a bad day for the market as well, with the S&P 500 down over 2.3% on Friday, Dec. 7.
Ulta's stock had surged since its last earnings report, when it revealed it would be the exclusive partner to Kylie Jenner's Kylie Cosmetics makeup line. So, the recent sell-off really just brought the stock back to levels it occupied before the Jenner announcement.
While guidance may have spooked investors (with numbers slightly below analyst consensus), Ulta also announced several key digital initiatives that long-term investors should appreciate.
Image source: Getty Images.
First, the quarterly results
While Ulta did match analyst expectations for revenue growth and actually surpassed estimates for earnings per share, the company's softer-than-expected guidance left investors wanting more. Investors also may have been spooked when the company moderated its pace of store openings from 100 over the past two years to 80 next year, 75 the year after, and 70 the year after that.
The company still expects between 1,500 and 1,700 total stores eventually, up from the current number of 1,163. But with many leases rolling off in the upcoming year, Ulta may be looking to better position existing stores in certain geographies, leading to a lower net opening figure.
Three tech plays for Ulta
What may have slipped under the radar around earnings were Ulta's first real investments in technology companies. During the quarter, it acquired two small tech start-ups, GlamST and QM Scientific, and announced a partnership with tech firm Iterate. According to the company's recent financials, these recent acquisitions cost roughly $13 million.
GlamST is a company Ulta had worked with already. Its technology powers the virtual makeup trials on the Ulta app (where you can upload a picture and virtually sample makeup). This brings in augmented reality capabilities to Ulta that you might also find on other social media or mobile apps.
QM Scientific is an artificial intelligence company whose capabilities management describes as "artificial intelligence, recommendations, computer vision, natural language processing and visual search." Its offerings are likely to power Ulta's future digital recommendation engines.
Iterate, meanwhile, helps give non-tech companies access to top talent in California and Colorado (Ulta is headquartered in Chicago) and assists with best tech practices across different industries. Iterate is akin to an outsourced tech team for large corporations, benefiting from knowledge it gains across its broad customer base.