What Ulta actually delivered
Ulta’s third quarter landed squarely in the “clean beat” bucket. Diluted EPS printed at about $5.14 versus roughly the mid-$4s expected, a high-teens percentage upside surprise. Revenue came in around $2.86–$2.9 billion versus expectations near $2.7 billion, roughly 13% year-over-year growth and a mid-single-digit percentage beat versus the Street.
Comparable-store sales grew in the low- to mid-single digits (about 6.3%), driven by both higher average ticket and increased transactions, which is exactly what bulls wanted to see in a supposedly “normalized” beauty cycle. Gross margin expanded versus the prior year on lower shrink and healthier merchandise margin, even as SG&A grew with incentive comp, store wages, and tech investments.
The real kicker was the outlook. Management raised full-year guidance again, with sales now guided to about $12.3 billion and EPS pushed up into the mid-$25s. That’s a genuine reset higher on earnings power, not a token tweak. It effectively says: the beauty engine is still running hot, and current margin structure is more durable than skeptics believed.
Price reaction vs the original call
Heading into the print, the preview framed the setup as:
- Label: modest beat on EPS, revenue roughly in line to slightly ahead.
- Direction: bias toward an upside gap on the order of +5–7% from a reference price around the mid-$540s.
- Directional confidence: low-60s probability that the gap would be positive.
- Guidance: base case of essentially in-line commentary, with real risk skewed to guidance tone.
What actually happened:
- The stock closed on the report date (Thursday, December 4) just above $534.50.
- After the after-hours release, the next regular session opened around $578.95, an ~8.3% gap up versus the prior close.
- Through the reaction day (Friday, December 5), buyers kept pressing; the stock finished around $601.50, an ~12.5% gain versus the pre-earnings close.
So:
- The gap move came in larger than the +5–7% base case but firmly in the expected up direction.
- The full-session move was even stronger, with no meaningful intraday reversal—an opening pop that trended higher into the close.
By the project’s definition of “flat” versus “directional,” both the gap and the session were decisively positive.
Scoreboard: model and crowd vs reality
From the perspective of the earlier preview:
- The label of a beat was correct, but the actual quality of the beat (EPS and revenue both comfortably ahead of consensus, with margin expansion) landed closer to the bull scenario than the base case.
- The directional call—upside gap—was correct for both the gap open and the reaction close.
- The magnitude expectation was too conservative on the upside. The preview anticipated something somewhat smaller than the ±8% implied move; instead, Ulta essentially delivered the full implied move at the open and then overshot it by the close.
On the formal metrics:
- The gap return (~+8.3%) is clearly positive, so the directional call on the gap was correct.
- The session return (~+12.5%) is also clearly positive and in the same direction, so the call was correct for the full day as well.
- There was no meaningful reversal: the stock opened up and closed even higher, so the move’s sign never flipped intraday in any economically relevant way.
The crowd prediction on the site was 100% skewed to “Up” (one recorded vote), so the majority view was also on the right side of both the gap and the session.
Given a stated directional confidence in the low 0.6s, this is a case where both the model and the crowd were right on direction, and the realized payoff was significantly better than the central scenario implied.
Why the reaction was so strong
Several ingredients explain why Ulta didn’t just drift higher—it broke out:
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Beat quality, not just the size
EPS and revenue beats were clean, driven by broad-based category strength and mix, not accounting noise. Same-store sales growth in the mid-single digits with expanding gross margin is about as “textbook good” as a mature beauty retailer gets. That combination directly challenged the prior quarter’s bear narrative around margin compression. -
Raised guidance with confident tone
The preview treated “in-line guidance” as the center of gravity. Instead, management raised full-year sales and EPS guidance and sounded upbeat about the holiday quarter and ongoing category health. That sort of tone justifies both a one-time level shift in the stock and some multiple support. -
Beauty as a resilient category
Sector commentary reinforced that beauty is still one of the few parts of discretionary retail where demand is growing solidly. Ulta’s results and commentary linked that directly to their strategy—loyalty, prestige mix, digital, and the Space NK acquisition—giving investors a clear structural story to pay up for. -
Positioning and hedging
Into the event, short-dated options priced a rich ±8% move with a noticeable tilt toward downside put protection. When the realized scenario came in at the right-hand tail—beat plus raised guide—existing hedges became fuel for a sharp squeeze higher. That helps convert a “solid beat” into a “top of the S&P 500” move.
The upshot: the core directional thesis (upside more likely than downside) was right, but the scenario that actually played out was closer to the bull case than the base case.
How the suggested trades would have behaved
The preview’s example structures were: a short-dated call spread, a “willing buyer” downside put/put spread, and a wide iron condor trying to short event volatility.
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Short-dated call spread (e.g., 545/590 in the event week)
- With the stock opening well above the lower strike and finishing near or even above typical upper-strike candidates, a call spread centered on a mid-single-digit move would have been deep in the money by the end of the reaction day.
- This is exactly the outcome those structures seek: defined-risk participation in a large upside gap. The only regret is not choosing a higher or wider spread once the magnitude of the move is known in hindsight.
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Cash-secured or vertical put spreads in the low $500s
- Those levels never traded once the earnings print hit. Short puts or put spreads below recent support would have decayed rapidly after the gap up and likely could have been bought back for pennies.
- For traders who were genuinely willing to own Ulta on a disappointment, this functioned as pure premium income with risk never really challenged.
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Wide iron condor centered near the pre-earnings price
- This is the structure that would have suffered. With the stock gapping above the upper short-call wing and then continuing higher, the call side of the condor would have gone into max-loss territory unless the wings were set very far out of the money.
- Defined risk keeps this from being catastrophic, but it’s still a reminder that “rich implied vol” around a key guide can be justified when the distribution is skewed toward a big right-tail.
Net-net, trades that expressed defined-risk upside or sold downside fear did well. Trades that tried to fade the entire event via short vol suffered.
Lessons for future setups like this
A few takeaways for the next high-quality, high-expectation retailer:
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Guidance can upgrade the entire distribution, not just the mean.
The preview’s main miss was underweighting the probability of a “beat plus higher guide” scenario. When that hits, the stock doesn’t just clear the event; it often re-rates. -
Rich implied volatility isn’t automatically wrong.
The ±8% straddle premium looked steep versus recent realized volatility. But realized vol ended up exceeding implied vol, which is entirely rational when the true catalyst is a guidance inflection with a wide range of outcomes. -
Hedged positioning can turbocharge right-tail outcomes.
A tape loaded with puts and cautious positioning cushions the downside but leaves the door open to a violent squeeze if the news is decisively good. That’s exactly what happened here. -
Directional confidence vs. scenario mix.
The call assigned only modest edge to an upside gap, which proved correct. The lesson isn’t to crank that confidence higher retroactively; it’s to be explicit about which upside scenario the market is paying for. In this case, the realized outcome was closer to the bullish tail than the base case.
Overall, Ulta’s Q3 FY25 is a clean “win” for the directional view and a reminder that, for structurally strong category leaders, upgrades to earnings power can justify realizing the full implied move—and then some.