Up 40% In 2025, Warren Buffett Sold This Top Stock Before Its Hot Streak. Is It Too Late To Buy Now?

Ulta Beauty reported a strong operational recovery in 2025 after a strategic turnaround under new CEO Kecia Steelman, with Q3 net sales up 13% to $2.86 billion and comparable-store sales +6.3% (vs. 0.6% a year earlier). Year-to-date sales rose 9% to $8.5 billion and the company raised full-year sales guidance by $200–$300 million while lifting EPS guidance by more than $1 to $25.20–$25.50, driven by store investment, a new online marketplace and brand initiatives. Berkshire Hathaway briefly owned Ulta in 2024, realizing roughly a 15% gain before exiting, and Ulta’s stock rallied ~40% in 2025, making the company a continued growth candidate for investors given its cash flow, guidance upgrades, and multi-channel execution.

Analysis

Market structure: Ulta (ULTA) is the primary beneficiary of improving U.S. beauty demand — Q3 sales $2.86B, comps +6.3% — which should lift suppliers (established brands and exclusives) and salon services; pure-play e-commerce and department-store beauty counters are the losers as Ulta reclaims share through in-store investment + marketplace expansion. Pricing power should improve modestly (target gross-margin carry of 50–150 bps over 12–24 months if exclusives and private-label mix increases), while macro sensitivity keeps upside capped if discretionary spend weakens. Cross-asset impact is small: a stronger ULTA reduces retail sector volatility (VIX tail muted), marginally tightens high‑yield retail spreads (<10–20bps) and lowers options IV for peers as consensus rotates into discretionary growth names.

Risk assessment: Tail risks include a failed marketplace rollout (vendor adoption lag >6 months), a consumer pullback reducing comps to <1% YoY, or margin compression from promotional share gains — each could knock EPS below the new $25.20 guide. Time horizons split: immediate (days) = momentum/earnings reaction; short-term (1–3 quarters) = execution on personalization and marketplace; long-term (2–5 years) = sustained share gains if omnichannel ROI >12% on store investments. Hidden dependencies: vendor onboarding, loyalty-data monetization, and salon traffic recovery — all binary catalysts.

Trade implications: Tactical: establish a 2–3% long ULTA position for 12–18 months, scaling in on any pullback ≥10% or after a double-beat quarter (sales + EPS). Use a 9–12 month call spread (buy 1x 12-month ATM call, sell higher strike ~20–30% OTM) to size upside and cap cost; hedge idiosyncratic retail risk with a short XRT (retail ETF) position to create a long-ULTA/short-basket pair. Rotate +1–2% portfolio from lagging brick‑and‑mortar peers into beauty/consumer discretionary names if holiday comps remain >+4%.

Contrarian angles: The consensus underestimates execution risk of the new marketplace and overestimates straightforward margin expansion; if Ulta nails vendor exclusives and personalization, upside is underpriced — implied multiples assume only ~2–3% long-term comp growth. Historical parallel: Sephora’s platform effect where retail share shifted to a single omni-channel player over several years; conversely, a marketplace stumble could compress ULTA multiple by 20–30% quickly. Watch three indicators over next 90 days: marketplace vendor count (target +100 new brands), loyalty-active customers growth (>+5% Q/Q), and gross-margin trend (+50 bps Q/Q) as pass/fail signals.

Key Decisions for Investors

• Establish a 2–3% position in ULTA for a 12–18 month horizon, adding on pullbacks of ≥10% or after two consecutive quarterly beats (sales and EPS); target total return +35–50% if comps sustain >4% and EPS >$25.50.
• Implement a 9–12 month call spread on ULTA to express bullish view with defined risk: buy 12-month ATM calls and sell 20–30% OTM calls (1:1) sized to cap downside to ≤3% portfolio exposure.
• Run a pair trade: long ULTA (size above) and short XRT equal notional to isolate ULTA stock-specific outperformance; reduce pair if retail ETF outperforms ULTA by >15% in 90 days.
• Reduce exposure by 1–2% to general department-store and low-margin retail names (e.g., M/other mall-based retailers) and reallocate into beauty/consumer discretionary if Ulta posts two successive quarters of margin expansion (+≥50 bps).
• Monitor three 90-day catalysts before adding more: marketplace vendor additions (+100 brands), loyalty-active customer growth >+5% Q/Q, and gross-margin improvement ≥50 bps; if any fail, trim ULTA position by 50%.