Ulta Beauty Inc (NASDAQ:ULTA) is well-positioned to sustain its recent business momentum while bringing its operating cost growth under tighter control, UBS analysts have highlighted in a recent research note.
“We think Ulta can maintain its momentum while moderating its investment spend ahead,” the analysts wrote, adding that “the answer is resoundingly yes” to whether the retailer can balance growth and cost control.
The firm expects that as this becomes clearer in upcoming quarters, Ulta’s shares could move higher.
The debate over Ulta’s cost structure has centered on selling, general and administrative (SG&A) expenses, which have grown faster than sales in recent periods. In fiscal 2025, SG&A rose 17.4% compared with same-store sales growth of 5.4%, following a smaller gap in fiscal 2024, when expenses increased 4.2% against 0.7% comparable sales growth.
UBS attributed much of the historical increase in costs to long-term expansion. Over the past decade, the company’s store footprint grew steadily, accounting for nearly half of total SG&A growth at about $1.1 billion. That pace is expected to slow, easing pressure on the overall cost base.
More recent spending has also been tied to strategic investments. Ulta completed a major enterprise resource planning transition in late 2024 and upgraded its digital infrastructure, contributing to elevated expenses even as sales growth remained modest. UBS estimates the company invested roughly $25 million to $55 million in growth initiatives that year after adjusting for inflation and variable costs.
“We think the company will exhibit much tighter cost control in 2026 and beyond,” UBS wrote, pointing to moderating investment in infrastructure, improved returns from newer initiatives, and more disciplined management of marketing and capital allocation.
Additional pressure on expenses came from the acquisition of Space NK in mid-2025, which UBS estimates added more than $100 million to SG&A, or roughly four percentage points of growth. While this impact is expected to persist into early fiscal 2026, it should diminish in the latter half of the year.
The firm noted that investors are currently bracing for elevated expense growth in the near term, with expectations for mid- to high-teens SG&A increases in the first quarter. However, UBS wrote that recent company messaging suggests a sharper slowdown later in the year, potentially reaching low single-digit growth in the back half.
Concerns about slowing customer traffic have also weighed on sentiment, particularly after a slight deceleration in late fiscal 2025. UBS views the current uncertainty as an opportunity, arguing that the market is underestimating Ulta’s ability to expand margins over time.
“At a 17x multiple, we don’t think shares are fully pricing in Ulta’s ability to curtail its SG&A growth and drive operating margins much higher,” the analysts wrote.
UBS maintains a Buy rating on the stock, with a price target of $810, based on its fiscal 2027 earnings estimates.
Shares of Ulta Beauty traded hands at $528 on Wednesday.