Ulta Beauty (ULTA) has "plenty" of room for upside following its solid fiscal Q1 results, UBS Securities said, citing improving execution, favorable competitive dynamics, and a conservative outlook that leaves room for outperformance.

Despite beating fiscal Q1 EPS consensus estimates by about 15%, the company raised its full-year guidance by just 1%, leaving the majority of its original outlook intact, UBS said in a Thursday note. The firm sees this as a sign that expectations remain beatable, especially as operational metrics such as in-stock levels, conversion, and customer satisfaction improve.

The firm highlighted that Ulta's execution has become "crisper," with net promoter scores rising both in stores and online, and comp growth seen across all demographics-including in areas with recent competitor openings.

The brokerage said the impact from new Sephora and Target shop-in-shop expansions is likely fading, removing a key overhang on future comp performance.

Ulta's upcoming initiatives-including a third-party marketplace and a subscribe-and-save program-also represent meaningful growth opportunities, particularly in capturing more spend from loyalty members' replenishment purchases.

While second-quarter gross margins may normalize following a shrink-related benefit in Q1, UBS noted that merchandise margins remained steady and that the promotional environment has stayed rational. Coupled with disciplined SG&A spending, the firm believes Ulta has built in cushions that could support further upside.

The firm raised its price target on Ulta Beauty to $525 from $490 and maintained its buy rating.

The company's shares rose more than 12% in recent Friday trading.

Price: 474.33, Change: +52.54, Percent Change: +12.46