Ulta Beauty: Zacks’ Bull of the Day Play

Ulta Beauty (ULTASnapshot Report) reported another great quarter on March 10, to cap off another terrific year of growth. They also raised guidance and detailed expansion plans as their rollout of new cosmetic and salon boutiques accelerates.

This strong report and outlook from management not only vaulted shares 17% from $163 to an all-time high of $192 on March 11, it also inspired analysts to start raising their earnings estimates for this year and next. And that’s why ULTA is back to a Zacks #1 Rank.

The Business of Beauty

Ulta Beauty is the largest US beauty retailer, with one-stop shopping for prestige, mass and salon products in 874 locations in 48 states (as of January 30). The company focuses on providing “affordable indulgence” to customers through a combination of product breadth, value and convenience with the distinctive environment and experience of a specialty retailer.

Since opening its first store 25 years ago, Ulta Beauty has grown to become the premier beauty destination for cosmetics, fragrance, skin, hair care products and salon services. They offer more than 20,000 products from over 500 well-established and emerging beauty brands across all categories and price points, including Ulta Beauty’s own private label.

Ulta Beauty also offers a full-service salon in every store featuring hair, skin and brow services. The company is recognized for its commitment to personalized service and distinctive, inviting stores and its industry-leading ULTAmate Rewards loyalty program. The online portal offers a collection of tips, tutorials and social content.

The Beautiful Numbers

ULTA reported a fourth-quarter earnings beat of nearly 10% with EPS of $1.69 vs the consensus of $1.54. Total sales increased 21.1%, reflecting 12.5% comparable (same store) sales growth vs expectations for 9.4% “comps.”

The 12.5% same store sales increase was driven by 8.6% growth in transactions and 3.9% growth in average ticket where retail comparable sales increased 10.4%, including salon comparable sales growth of 9.2%.

Salon sales increased 16.7% to $54.6 million from $46.8 million in Q4 2014 while E-commerce sales grew 44.2% to $94.8 million from $65.7 million a year ago.

Management also described new-store productivity as “very strong” and indicated that cannibalization was minimal.

The Beautiful Outlook

In addition to guiding 2016 EPS growth of 18%-20%, which corresponds to EPS of roughly $5.87-$6.00, management offered these highlights in their earnings press release…

*Achieve comparable sales growth of approximately 8% to 10%, including the impact of the e-commerce business

*Increase total sales in the mid to high teens percentage range

*Grow e-commerce sales in the 40% range

*Expand square footage by approximately 11% with the opening of 100 net new stores

*Remodel 12 locations

*Deliver earnings per share growth in the range of 18% to 20%, including the impact of the new Dallas distribution center, the accelerated rollout of prestige brand boutiques, the accelerated share repurchase program, and continued open market share repurchases

Regarding the 100 net new stores, approximately 70% will be in existing markets and 30% in new markets, with 60% in existing retail centers and 40% in new retail centers.

According to analysts at William Blair…

“When asked about longer-term store potential, the company referred to its latest 1,200-plus five-year (2019/2020) domestic target for its primary larger-format stores as having strong visibility, as well as potential for smaller-format stores over time.”

Analysts Give Their Models a Makeover

In the past week, analysts have raised earnings estimates to fit with the company’s guidance. Here are the Zacks Detailed EPS tables…

As you can see, the 4% and 4.8% bumps to estimates in the past 30 days for this year and next keep ULTA on pace for roughly 20% bottom-line growth. That will keep those institutional investors who are focused on domestic consumer growth accumulating ULTA shares, even with a forward multiple over 30 times.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.


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